Anchor drops on earnings alert
Shares plunge 15% on update that interim profit may fall nearly 50% on the prior period on flat market conditions and stronger rand
Anchor Group’s share price plummeted nearly 15% on Monday — to levels last seen on its listing nearly three years ago — after the group issued a trading update warning that interim profit was expected to fall nearly 50% on the previous period.
While the update was "very disappointing" and a setback to Anchor’s growth path, the company’s goals and dreams were unchanged, said CEO Peter Armitage. The goal was "to build a critical-mass South African and global asset manager and deliver returns to clients".
In a statement issued on Monday, Anchor Group cautioned that earnings per share for the six months to June were expected to fall between 43%-48% to a low of 18.3c.
Anchor’s earnings would have been "considerably better" were it not for hedge fund subsidiary Capricorn’s earnings decline, off a high base in the previous period, said Armitage. The hedge fund had earned no performance fees, he said.
Average shares in issue were up 13%, which had affected
per share earnings and would have a reduced effect in the second half.
Flat market conditions and a stronger rand, which weakened dollar earnings, had hurt the group’s year-on-year revenue growth, even as costs continued to increase in line with inflation, said Armitage.
Anchor’s total assets under management and advice at June 30 were up 8% to R49.4bn. Its unit trusts had achieved top quartile performance, he said.
Asset managers earn fees on assets under management, which are increasing at a slower pace in the subdued market. The JSE said last week that value traded on the local bourse was down 13% year on year. The all share index has returned 11% in 2017, with almost all of that achieved in the second half.
Anchor’s growth in assets remained fairly positive compared with many others in the asset management sector, said Anthony Clark, small-to mid-cap analyst at Vunani Securities.
A lot of this had to do with timing as the market was down in June but had since rallied 7%, he said. "The dismal guidance for the first half, though poor, is an accounting snapshot in time."
June had been a particularly disappointing month, taking a large chunk off the bottom line, said Armitage. "We are quite a small business, so a bit of pressure can add or subtract a few million bucks, which is a lot percentage-wise."
While Clark had expected weakness in Anchor’s first-half earnings, the "lowball guidance" had shocked even him. Armitage sounded like "a man whose puppy had been kicked".
Anchor would continue to invest in its stockbroker and its institutional business, said Armitage. "The stockbroking business should make a really nice contribution in the second half of the year."
The group continued to hunt for an offshore acquisition in the wealth management space.