Sygnia performs despite a “turbulent” economic environment


Shares of listed fund manager Sygnia closed more than 4% on Tuesday (at R18 per share) after the group, founded by Magda Wierzycka, reported a strong performance for the fiscal year ended September 2021.

Sygnia herself has set the bar very high to become one of South Africa’s largest asset managers since its inception in 2006 and joining the JSE in 2015.

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Highlights of the group’s performance for the year 2021 include:

  • Assets under management and administration increased nearly 18% to R296.4 billion (2020: R251.8 billion).
  • Revenue increased 11.5% from Rand 661 million to Rand 737.2 million.
  • Profit after tax reached Rand 240.9 million (up almost 17% from Rand 206.1 million in fiscal 2020).
  • Overall earnings per share of 170.7 cents (2020: 146.4 cents), up 16.6%.

The dividend was raised to 1.35 rand per share, after the 1.10 rand paid the previous year.

Turbulent backdrop

Management says this was achieved in another difficult and economically turbulent environment for cyclical companies like Sygnia.

“During the period, the FTSE / JSE All Share index returned 23.2%, the JSE All Bond composite index 12.5% ​​and the MSCI World index, in SA rand, 16.2%.

Read: Sygnia, Wierzycka and several “small transactions with related parties”

“The growth [in assets under management] took place in an environment where the institutional savings market is contracting due to almost negligible economic growth, business closings and layoffs in South Africa, ”noted management.

On the operations side, it should be noted that the growth in assets under management was stimulated by individual investors, rather than by obtaining mandates from institutions.

Sygnia CEO David Hufton notes that the “superior” long-term performance of Sygnia’s investment funds has been a major contributor to this growth in retail fund flows, as well as the launch of several new funds.

“The range of funds managed by Sygnia continues to rank in the top quartile of performance surveys for most medium and long term risk profiles. This performance is a mix of low cost strategies and a strong focus on macroeconomic trends, which lead to active asset allocation decisions.

“Sygnia’s focus on low cost investment and savings products and service delivery means that, unlike our competitors, we have been under little pressure on management fees,” said Hufton.

Read: The best performing global equity funds available in South Africa

Sygnia also mentions that past initiatives, such as the launch of Sygnia Umbrella Retirement Funds in 2016 and the acquisition of a passive asset management business from Deutsche Bank in 2017 (renamed Sygnia Itrix), are starting to contribute significantly. to the results.

The retirement umbrella fund business is now the sixth largest umbrella fund offering in South Africa, while Sygnia Itrix is ​​the second largest provider of JSE listed exchange traded funds (ETFs) and largest company South African supplying international ETFs to the local market.

Expansion at sea

The company’s offshore expansion will be worth watching. Hufton notes that international expansion is not expected to materially contribute to results for the foreseeable future, but is seen as an exciting opportunity to diversify revenues in the years to come.

Sygnia has recently launched a number of Irish registered funds which will be marketed to SA clients with existing offshore investments, as well as through international investment platforms.

Management also notes that the trend towards passive investment strategies is on the rise in South Africa.

“Sygnia is well positioned to take advantage of growing investor skepticism about the more expensive alternative to active management, especially in a low yield environment,” Hufton said in his earnings commentary.

To read: Sygnia’s criteria for selecting active managers

“Thematic investing is also growing in popularity and our niche funds continue to benefit from good inflows. ”

Market conditions

It is worth taking note of the opinion of experts in the investment markets.

Sygnia believes that while 2020 saw a remarkable recovery in markets after the Covid-19-induced recession, it also brought with it the shadow of rising inflation for the first time since the 2008 global financial crisis.

“This fear of rising prices has also led to the realization that central banks around the world will have to normalize their monetary policy and end the great liquidity experiment, which has greatly benefited markets like South Africa. South, “he notes.

“The rand has strengthened by almost 10% over the past year, but as a nation we still face a significant fiscal imbalance. Positive terms of trade, especially due to high commodity prices, have also provided favorable winds for the local currency, but supply chain bottlenecks and the energy crisis will soon turn them into headwinds. , and the fiscus will have to be very disciplined to avoid a debt trap.

“Within our managed portfolios, we are still positioned for a low growth, low yield environment, with the world experiencing financial repression as the role of governments and central banks intensifies,” according to Sygnia.

China

The Sygnia team also made some interesting remarks about China.

The Chinese government is aggressively pursuing its “common prosperity” policy, which has shone the spotlight on the unchecked growth of its many global technology companies.

“It had a nationwide ripple effect, with the Naspers / Prosus group being particularly hard hit due to its significant stake in Chinese internet giant Tencent, which remains on the right side of government policy and a recovery is underway. likely for this title, ”management said.

“We predict that China and the world economy will be affected by three problems in the coming years. First, despite widespread fears of increased government surveillance, the Chinese government does not intend to outright cripple its tech companies, and its top regulators have reassured investors that tougher rules are not aimed at not to stifle the private sector.

“Second, while the default by property development company Evergrande has raised concerns about the extent of the housing slowdown in China and the persistence of the wider contagion, Beijing is expected to continue to decline. balancing common prosperity with economic stability. While it is likely that Evergrande’s shareholders and bondholders will be sacrificed, China’s real estate sector and economy will survive.

“Third, China’s monetary policy is becoming more stimulating with the reduction of bank reserve requirements by the People’s Bank of China in July. In September, the State Council announced additional credit support of RMB 300 billion for small and medium-sized enterprises, ”notes Sygnia.

Restored

Like most stocks, Sygnia recovered strongly from its low of R7.50 during the JSE Covid-19 infection in March 2020.

Shareholders seemed happy with Tuesday’s results and the stock, although still below its recent high of R21, added 80 cents to close at R18.