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Johannesburg – Coronation Fund Managers [JSE:CML] has been smoking hot in the last two years and there's no reason why this can't continue, even if the market goes sideways.
There is an old saying that a stock which consistently trades on a better price to earnings (PE) multiple relative to its peers deserves to be there.
Coronation is a case in point.
In 2009, it opened trading at 462 cents per share. It subsequently rocketed to an all-time high of 1 670c, following the release of full-year results to the end of September.
It's hard to argue with that kind of return when listed competitors such as Peregrine (180%) and Cadiz (102%) have lagged.
For sure, the three stocks are driven by the performance of the equity market, but why then is Coronation being rated on a PE multiple of 14 times earnings, while Peregrine is sitting on 10.7 and Cadiz Holdings on a lowly 8 times?
The answer is simple, say analysts: Coronation's dividend record.
The 127c you are picking up this year means that at the moment Coronation is offering you a 7.6% yield.
Try and get that on other investments in a world which is desperately seeking yield.
Cadiz paid a decent end-of-year dividend (20c) in May which puts it around 5.8%, but investors need to remember just how hard it has had to work to grow its assets under management.
It is still sensitive to sideways movement hurting performance fees. On top of that, international competitors are becoming predatory in the local market and Cadiz could find itself under increasing pressure to secure mandates.
Coronation, on the other hand, which has consistently offered investors a yield of between 4% and 7%, has R198bn in assets or a share of about 7.5% of the South African long-term savings market.
It is far less susceptible to a big international player in the market taking a meaningful chunk of its market share.
It doesn't have to shoot the lights out any more, it just has to keep the machine ticking over through the cycles.
- Fin24
