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The next Coronation?

Anchor Group to list mid-September.

JOHANNESBURG – Does the proposed listing of the Anchor Group offer an opportunity for long-term retail investors to bolster their portfolios and create some wealth?

Moneyweb recently reported that the group plans to list on the JSE’s alternative board, the AltX, next month. The primary aim of the listing is to provide staff and investors with an opportunity to share in the growth of the company.

The Anchor Group’s primary asset is Anchor Capital, a mid-size asset manager founded in early 2012.

The group also has a significant shareholding in Ripple Effect 4, an information technology and financial services training business that offers services to Anchor Capital and minority stakes in other asset management businesses.

There are 62.6 million shares in the business and another 30 million will be issued at R2 a share. At R2 a share its market capitalisation would be
R185 million.

Should retail investors get on board?

Anthony Clark, small and mid-cap analyst at Vunani Securities, says Anchor Capital is a young business, founded by colourful yet astute former chief investment officer of Investec Wealth, Peter Armitage.

It has managed to gain R5.2 billion of assets under management and the small team (40 staff) has the skill and capacity to manage far more funds.

“The growth in Anchor will depend on its success to expand its footprint and reach beyond its initial rich 550 clients to target the middle market with new products such as unit trusts and garner more funds to manage from other clients,” Clark says.

A successful listing should also raise its mass media profile, he says.

Charl Bester, wealth and portfolio manager at Kruger International and Chris Nel, junior analyst at the same company, say Armitage has a good track record and is well respected in the industry.

“He seems to have gathered a well-accomplished team around him and achieved significant institutional backing early on. Therefore, the building blocks are in place to make a successful company,” they argue.

However, investment firm profits are largely determined by the performance of markets.

“With markets being close to all-time highs, the company performance and therefore the IPO (initial public offering) price could be higher than a long-term investor might find attractive,” Bester and Nel say.

They believe this has to be weighed against the growth in assets under management. As assets increase, the fees derived from these assets increase as well.

Clark says an increase in funds under management from the current
R5.2 billion would support growth in the share price in time.

As a result of economies of scale its 40 staff can probably handle multiples of this amount at very little additional cost and the revenue and profit rise should be significant if more funds flow to the business, he says.

Bester and Nel also believe growth in assets under management is critical to support the share price.

As assets under management increase, it is important that the growing pains are managed in such a way that the performance of funds is not affected. Investment performance is the reason new clients sign up and if this can be maintained (thus far performance has been good), earnings growth should occur, they say.

Clark says with a consistent track record, the group can now attempt to penetrate the wider independent financial advisor (IFA) market and gain funds from IFAs and institutional investors.

The launch of new higher value products and services and the divisions in which the group has minority stakes (if successful) should also support future growth.

Clark says as an AltX stock, the share inherently has risk, as it is a young company.

The share is priced on a forward price-earnings ratio of 7.6 and a forward dividend yield of 6.5%.

Relative to the sector of the market it will be compared against (PSG Konsult, Coronation, Sasfin, Peregrine) the rating is very well priced, he says.

“I expect the stock to open at a fair premium to its 200 cent listing price,” Clark says.

But with a limited income stream and a lack of business diversity allied to movements in equity markets it is not a stock for the average man in the street or widows and orphans, Clark says.

“However, for investors who understand the risk of investing in such ‘start-up or growth’ businesses the rewards can be many.”

Coronation started small and many investors wished they had bought shares at the IPO, he says.

“I’m not saying that Anchor is the next Coronation, but given the ‘niche’ that Anchor has identified it may do well over the coming years,” Clark says.

Bester and Nel say Anchor’s growth has been almost meteoric and the perception linked to it has almost been entirely positive.

“Therefore, how exactly they will handle a drop in this sentiment, if one were to occur, will be critical to their long-term viability as a company,” they argue.

For the outside investor, liquidity is a concern.

If the company has a valuation of R185 million, a large portion of this will be tied up in the hands of employees and current owners, Bester and Nel say.

“It is probably more likely that the share will suffer a lack of liquidity than the reverse,” they say.

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