Our opinion on the current state of CORONAT(CML)

Coronation Fund Managers (CML) is a prominent asset management firm in South Africa, notable for being the only one of its kind listed on the Johannesburg Stock Exchange (JSE). Established in 1993, the company experienced significant growth until 2015, at which point the founding CEO resigned and Adrian Pillay took the helm. Despite Pillay's qualifications, his tenure has seen challenging times for Coronation, particularly due to investment missteps.

The firm faced substantial losses from investments in African Bank and Steinhoff, which significantly impacted its reputation and led to a reevaluation of its asset selection capabilities by the investment community. This scrutiny has resulted in a noticeable outflow of institutional funds, which is critical in a business heavily reliant on confidence and trust in judgment and expertise.

The asset management industry depends on maintaining a high level of trust with institutional fund managers, who must believe in the asset manager's decision-making abilities. This typically requires a team of highly qualified individuals with proven track records. However, even the most skilled teams can make errors that result in financial losses, as seen in Coronation's case.

Further complicating matters, on February 8, 2023, Coronation announced a lost appeal with the South African Revenue Service (SARS) regarding additional taxes, which may lead to the suspension of its dividend payments. This news sharply drove down the share price. For the fiscal year ending on September 30, 2023, the company reported a 2% decrease in revenue and a dramatic 50% decline in headline earnings per share (HEPS). With R602 billion under management, the firm also noted net outflows amounting to 10% of average assets under management (AUM). These outflows were attributed to a combination of industry-wide withdrawals from global emerging markets due to a decade of lackluster performance and the shrinking South African savings pool.

Looking ahead, in a trading statement for the six months ending March 31, 2024, Coronation estimated that HEPS would rebound to at least 190c compared to just 6.2c in the previous period, suggesting a possible recovery or stabilization.

Technically, Coronation's shares saw a significant rise from 2008 until peaking at R115 per share on December 30, 2014. Under new leadership, the share price has faced declines, particularly with the onset of COVID-19, and has continued on a downward trajectory, now moving sideways and downwards. The current price-to-earnings (P/E) ratio stands at around 16.31%, which might seem attractive, but the potential for further declines cannot be dismissed. Given this backdrop, a cautious approach would be advisable for potential investors. It is recommended to monitor the stock for a clear upward break from its long-term downward trend before considering investment, though such a shift does not appear imminent.