Sygnia, the asset manager cofounded by Magda Wierzycka, has declared a final dividend after reporting that its after-tax profit for the financial year rose by almost a fifth despite difficult operating conditions brought on by volatile financial markets.
The Cape Town-headquartered investment firm said in a stock exchange filing on Monday that profit after tax for the year to end-September rose 19.3% to R287.4m, from R240.9m the previous year. Sygnia’s revenue climbed 9.7% to R808.9m while headline earnings per share, a profit measure that strips out one-off items, rose 12.1% to 191.3c.
“We increased our revenue at a decent rate in a very turbulent market and managed to contain costs well below the rise in revenue,” CEO David Hufton told Business Day in an interview. “I’m delighted with the results and the substantial increase in profits.”
Sygnia’s strong results performance allowed the group to declare a gross final dividend for the financial year of 130c a share out of its income reserves, resulting in a net dividend of 104c a share after dividends tax. Along with the interim gross dividend of 80c per share, that takes the group’s total gross dividend for the year to 210c per share.
“The dividend was out of the ballpark,” said Anthony Clark, an independent analyst at Small Talk Daily Research. “The performance of the share price today is purely as a result of the fat dividend payout.”
Sygnia’s share price rallied 8.4% to R18.75 as of 4.50pm.
The group’s latest financial results coincided with severe volatility on world financial markets thanks to a combination of extreme risk aversion in the wake of Russia’s invasion of Ukraine and the impact of co-ordinated rate hikes from central banks across the world that are trying to tame rampant inflation. At the same time, SA’s economy has remained in a moribund state as it struggles to shake of the impact of Covid-19, ongoing electricity shortages and a lack of investor and consumer confidence.
While Sygnia said in its results that a great deal of bad news is already priced into markets, it believed investors could be rewarded should the global inflation trajectory begin to cool. Even so, it warned that global central banks led by the US Federal Reserve remain hawkish that inflation could become entrenched, which could mean any bear market rally is short-lived.
Yet even though Sygnia managed to deliver a jump in profit, its assets under management and administration fell 3.8% to R285.1bn as of September 30, down from R296.4bn a year prior.
“Sygnia’s focus on the retail market and its umbrella funds seems to have shielded it from the worst of the regresses in assets seen at many other asset managers,” said Clark. “It has fared significantly better than many of the larger asset managers because its retail exposure continues to grow.”
Even so, Sygnia still experienced net overall outflows of almost R2.5bn, though Hufton said this was a “tale of two different client segment experiences”.
The firm’s retail business continued to flourish, attracting net inflows of R5.3bn, largely into the Skeleton balanced range of unit trusts. However, on the institutional side of the business Sygnia saw net outflows of R7.8bn.
“Most of that outflow relates to the loss of one very large international administration-only client,” said Hufton. “This client didn’t move vendors — they actually decided to cancel the service in its entirety. It’s a very low-margin client for us that has very little impact on revenue.”
Sygnia said that while it will continue to focus on “organically growing assets under management” it may opt to conclude “strategic acquisitions where these are regarded as being value-accretive”.
“We are predominantly focused on organic growth,” Hufton said. “Any acquisition would be opportunistic. It’s not as if we’re actively surveying the industry to identify a target.”
A strong proponent of passive investing, a strategy in which securities are bought in proportion to their weighting on a particular index, Sygnia said it planned to benefit from investors increasing dissatisfaction with higher-cost actively managed investment products such as unit trusts.
Given that passive investing is increasing in popularity in SA, Sygnia said it is well positioned to take advantage of a growing scepticism among investors about the more expensive alternative of active management, particularly in an environment of low investment returns.
“The relaxation of exchange controls earlier this year has certainly given rise to an opportunity for us as more investors, particularly institutions, seek to go offshore,” said Hufton. “As they look to increase their offshore exposure it creates opportunities for our international exchange traded funds (ETFs).”
Changes to regulation 28 of the Pension Funds Act announced earlier this year mean insurance, retirement and savings funds can now invest 45% of their assets offshore, up from the previous limit of 30%.
Hufton also said that Sygnias long-delayed retail platform should be ready towards the start of the second quarter of 2023.
Update: December 5 2022
This story has been updated with ” CEO David Hufton’s comments and addition information.
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