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Anchor Group to list

Market cap could be more than R185m.

JOHANNESBURG – The listing of the Anchor Group on the AltX in early September this year could create an entity with a market capitalisation in excess of R185 million.

The Anchor Group’s primary business is Anchor Capital, a mid-size asset manager with over R5.2 billion of assets under management. The group also has a majority stake in Ripple Effect 4, a small information technology and financial services training business that provides services to Anchor Capital, and a handful of minority interests in other asset management ventures.

Anchor Capital’s client base is dominated by high net worth individuals, but the business has also started to attract some institutional and corporate funds while smaller clients have invested in its unit trusts.

Founded by former chief investment officer of Investec Wealth Peter Armitage in early 2012, the group’s main shareholders include Armitage himself, Clark Investments (the investment company of former chairman of Grindrod Bank, Ivan Clark) and Mike Teke, former chief executive of Optimum Coal and current president of the Chamber of Mines.

Armitage admits that the proposed listing (they have informal approval from the JSE) is happening “quite quickly”. The business grew substantially over the last few years, supported by the bull market.

“Maybe we could have waited a few years to get a bit bigger, but we are confident in what we can do.

“I think listing just broadens your scope of opportunities dramatically.”

The key motivation behind the listing is to give those people – staff and investors – that have allowed the business to expand an opportunity to share in this growth, Armitage says.

The graph below highlights the growth in its assets under management (AUM).

Source: Anchor Capital

Currently around 10 of its staff members have shares in the business. This will be extended to all 45 staff members.

The capital raised with the listing will also allow the group to fund its growth aspirations, which could include the establishment of offshore operations.

However, it is not in a hurry to buy businesses to improve profits. It wants to be in a position to capitalise on opportunities that add to the business and buy companies with at least the same growth rate as the established entity, Armitage says.

Some of the capital will also be used to repay shareholder loans, increase working capital and expand the Ripple Effect 4 business.

There are currently 62.6 million shares in the business and another 30 million shares will be issued at R2 a share.

Armitage says a lot of the shareholding will be placed with clients and associates.

On a forward price-earnings ratio of 7.6 and a forward dividend yield of 7%, the share is “priced quite attractively”, he says.

“We have priced the listing significantly below peers and comparatives on a forward basis, but ultimately the market must determine what the appropriate price is. It will have the negative of a small market capitalisation and probably quite low liquidity, but we have a strong shareholder base and the potential to grow meaningfully off what is still a small base.”

Comparable listed companies

Source: Anchor Capital Forecasts

Armitage says the group has got commitments for “well in excess” of the
R60 million it wants to raise – largely from private clients and businesses.

“We are not a big business. We would be diluting too much if we raised more.”

Retail investors would be able to participate and may apply for shares through their stockbrokers once the prospectus is released next week.

The table below sets out the expected use of its listing proceeds:

Payment of shareholders loans 5 338 667
Listing costs 2 000 000
Anchor Capital additional working capital 3 500 000
Purchase of property 6 666 667
Ripple Effect 4 development and expansion 2 000 000
Available for acquisitions 40 494 666
Total 60 000 000

Source: Anchor Capital

Armitage says the listing will not constitute an exit for current investors. Afterwards, his own shareholding will be 19.2% while other staff members would hold 21.5%. Ivan Clark would own 11.6%, Mike Teke 10% and 37.7% would be free-float.

The strategy of the business won’t change.

“We are doing something quite simple. We are investing people’s money, giving them a great service and giving them great returns and we are just going to keep on doing that. That is what is working.”

While the fall of a handful of construction companies that listed on the AltX in 2007 has marred the JSE’s alternative board, Armitage is positive about their prospects.

“The success stories aren’t plentiful, but we view it is a platform on which to prove ourselves. We are the same group of people who have grown the business so far, just with more opportunities now available.”

More stories from Moneyweb
Werner Swanepoel

Werner Swanepoel

Optimum Financial Services Group
Moneyweb Click an Advisor
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