Our opinion on the current state of CML

Coronation (CML) is one of South Africa's largest asset managers and the only one listed on the JSE. Founded in 1993, the company grew very well until 2015. At that point, the founding CEO resigned and a new CEO, Adrian Pillay, took over. Pillay is eminently well-qualified for the job, but things have not done well since he took over. The company was heavily invested in African Bank and lost a lot of money there. It was also heavily invested in Steinhoff. These missteps have caused the investment community to re-evaluate Coronation's ability to keep choosing winners on the JSE and elsewhere. The result has been an outflow of institutional funds. The fund management business is all about confidence. As a fund manager you need to get institutional fund managers to trust your judgement. Usually that means employing a team of very highly qualified people with solid track-records in managing funds. Unfortunately, no matter how good your team is, they are going to make mistakes and lose money sooner or later. On 8th February 2023 the company announced that it had lost a SARS appeal to have it pay additional taxes. Accordingly it may have to suspend its dividend. This caused the share price to drop sharply. In its results for the six months to 31st March 2023 the company reported revenue down 6% and headline earnings per share (HEPS) down 97%. Assets under management (AUM) increased 9% to R623bn. The company said, "Outflows amounted to 5% of our average AUM. This is in line with our recent experience and is a trend we expect to continue as the local savings pool continues to contract. Total fixed expenses increased by 11% from the prior corresponding period". In a trading statement for the year to 30th September 2023 the company estimated that HEPS would fall by between 45% and 55%. Technically, Coronation's shares rose very strongly from 2008 until its peak at R115 per share on 30th December 2014. After that, and under new management, it fell to a low of 2541c with the outbreak of COVID-19. The downward trend is continuing with the share drifting sideways and downwards. It has a dividend yield of around 4,51% which looks cheap, but it could fall further. We recommend apply a long-term downward trendline and waiting for a clear upside break - which does not look like it will happen any time soon.