Peregrine performance fees fall 65%
Wealth and asset manager grapples with reduced deal-flow in depressed business environment
Specialist financial services company Peregrine Holdings reported a sharp fall in performance fees in the year to March because of the weak financial markets.
“Without a doubt this is the most depressed business environment we have operated in. But there are opportunities in the current situation. The asset management businesses can use the opportunity to buy cheap assets. Citadel is an advice-led business and people require advice in tough markets. So, we think we are well prepared for any uptick in corporate and economic activity,” says Rob Katz, CEO of Peregrine.
The wealth and asset manager’s performance fee related income fell 65% to R95m. The group grappled with reduced deal-flow in both the general corporate finance as well as in equity capital markets during the year.
Peregrine’s operating earnings from continuing operations fell 8% to R326m, while headline earnings per share from continuing operations declined 7% to R1.52 per share.
The group, which comprises wealth manager Citadel and asset management businesses Stenham and Peregrine Capital, impaired its 50% stake in corporate finance house Java Capital by R100m.
The impairment was a result of weak financial markets that specifically affected capital raising in the listed property sector, which has been a large part of Java’s franchise. One of the biggest groups in the listed property sector, the Resilient stable, ceased raising money in 2018 after a string of reports alleging share price manipulation.
During its financial year to March, Peregrine completed its strategy to divest from capital-intensive businesses, which allowed it to declare a maiden interim dividend of 85c per share.
With a portfolio of strong annuity-generating businesses, Peregrine has committed to paying dividends equal to 80%-90% of its normalised headline earnings per share.
Following the sale of Peregrine Securities, which became effective in October 2018, the company has cash and investments at its disposal of R350m.
Peregrine spent R115m to buy back shares over the last financial year, and Katz says this avenue still looks attractive at Peregrine’s current price of R18 per share.
“We have already returned approximately 25% of the money received from the sale of the securities business to shareholders by way of the buyback,” says Katz.
“We are in no rush to deploy the money we have at our disposal, so we will wait and see how things settle in SA before we make any rash decisions.”
Devin Shutte, head of investments at the Robert Group, said: “I think it’s a much leaner business than it was in the past, and I like the focus on annuity revenue streams, up 10%, with Citadel being the standout performer. The group maintained healthy earnings before interest and tax margin while controlling operating expenses. If earnings can sustain the current dividend level, the investment is compelling, particularly at the current price-earnings multiple.”
Correction: June 21 2019
In an earlier version of this story we incorrectly stated that Peregrine’s operating earnings from continuing operations fell 8% to R1.62bn, in fact they fell 8% to R326m.