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May 21
Mixed fortunes in financial services PDF Print E-mail
Monday, 08 November 2010 09:48
As Coronation (JSE:CML) put out a trading statement forecasting headline earnings growth of 100%-120% in the year to September, Peregrine (JSE:PGR) limped in with a 3% headline earnings fall in the six months to September.

That was a bit better than Cadiz (JSE:CDZ), which has warned of a 25%-35% drop in headline earnings in the six months to September.

Peregrine emerges as a kind of twin to Brait (JSE:BAT).with profits and market capitalisations not that different. Peregrine has a market capitalization of R3bn - less than R100m more than Brait. Peregrine achieved headline earnings of R120,1m in the six months, compared to Brait's 115,7m.

The stark difference is in the valuations - Brait's heps rose by 50%, while those of Peregrine dropped 3%. With this kind of momentum behind it, Brait enjoys a PE of 11,8, compared to Peregrine's 10,6.

Peregrine CEO Jan van Niekerk said all four were vastly different. Brait has private equity but not wealth management or stock broking, PSG (JSE:PSG) has a star investment in Capitec.

Van Niekerk thinks Investec (JSE:INL), though much bigger, might be the most comparable house because of its exposure to asset management as well as private equity.

Since acquiring UK asset and property manager Stenham, like Investec, Peregrine has a significant foreign component. Stenham contributed 29% of Peregrine's bottom line. The balance was provided by stockbroking (32%) and wealth and asset management 39%.

Van Niekerk reports that Stenham experienced net inflow of $250m and lifted assets under management to $3,5bn ($2,1bn). It runs a global fund of hedge funds. The strong rand reduced rand income. Peregrine borrowed R750m to make the purchase. This debt has reduced to R486m. There is R600m cash at the centre, so gearing is conservative.

Peregrine grew revenues 14,5% to 734,1m but investment income plunged by two thirds to R32,1m (R92,1m). Operating expenses soared 11% to R561,6m, laving pre-tax profit 5%.

Van Niekerk admits that because of its hedge funds Peregrine is not well understood. He says the directors hold 50% of the shares and large investment managers that balance. As a result there is a very small free float of shares.

Because of the small free float, Peregrine tends to follow stock market movements - to extremes.

Over the years, as the JSE (JSE:JSE) rose, it forged from 250c to 2 300c before crashing to 140c in 2000. It recovered during the bull market to 2000 in 2007 before plummeting to 450c last year. Now it is 1319c heading, who knows where?

The table compares six months results in the cases of Peregrine, Brait and PSG for the period to August or September. The Cadiz and Coronation entries refer to recent trading statements, Cadiz for six months and Coronation for the year to September.