Cadiz posts a 23% increase in HEPS, but AUM decreases by R6 billion

Financial Services group, Cadiz Holdings has released its preliminary year-end results for the period ended 31 March 2014. The group's share price is down 25.52% on the year and has been on a downward trend over the last few years. Cadiz holds a current market cap of R265.49 million, along with a dividend yield of 6.48%.

Key features from the results:

• Diluted HEPS up 23% to 2.7 cents
• Operating costs down 3%
• Dividend per share 4.4 cents
• Assets under management R28.5 billion
• Maintained level 3 BBBEE status

Financial performance

Cadiz Holdings is nearing the completion of its turnaround programme as the business focuses increasingly on its core business, Cadiz Asset Management.

However, the group encountered a difficult trading period, with performance being impacted by lower-than-expected fee income from asset management and increased costs of the asset management staff equity and retention scheme.

Gross operating revenue was 6% lower at R138.6 million. Investment income, net of  third-party mutual interests, declined by 7% to R40.9 million. Expenses continued to be tightly managed. Group operating costs were 3% lower at  R165.4 million despite the inclusion of the asset management staff equity and  retention scheme expense for the first time. Costs excluding the impact of this scheme would have been down 7%. The staff head count was 16% lower at 97 (March 2013: 115).

The integration of BNP Paribas Cadiz Securities, in which the group has a 40% interest, into BNP Paribas has been completed and the business is now gaining traction in the  market. This is reflected in the share of associate loss declining to R3.8 million from R11.3 million in the previous financial year.

Operating profit from continuing operations of R14.1 million (2013: R20.4 million) is 31% lower than the prior year. Total comprehensive income for the period, after taking into account the loss of R1.9 million from the discontinued operation, increased 15% from R5.1 million to  R5.9 million.

Earnings per share from continuing operations increased by 50% to 3.3 cents per share, and earnings per share were 14% higher at 2.5 cents per share. Headline earnings totalled R6.2 million, with diluted headline earnings per share 23% higher at 2.7 cents. Cadiz declared a dividend for the 2014 financial year of 4.4 cents per share.

Asset management

Cadiz has continued to focus on building an independent asset management company which aims to deliver strong long-term investment performance and exceptional client service on a focused range of high-conviction investment solutions to institutional and high net worth individuals in South Africa.

Revenue decreased by 2% to R137.2 million while expenses of R143.8 million were 7%  higher. This includes the cost of the staff alignment and retention scheme introduced in late 2013. The business incurred a loss of R6.6 million compared to a profit of R5.4 million last year.

Total assets under management declined by R6.1 billion from March 2013 to R28.5 billion at year-end, with the reduction happening mainly in the first six months of the year
(September 2013: R28.8 billion). The net change in the asset base reflects a gain from market movement of R1.4 billion off-set by net outflows of R7.5 billion, mainly as a result of a single client withdrawal of R5.5 billion in July 2013. While net asset flows have been negative, Cadiz Asset Management has benefited from improving margins resulting from the acquisition of higher yielding mandates during the period. Despite assets under management declining by 18%, it is pleasing that revenue has only declined by 2% off this reduced asset base.

Prospects

Following the turnaround programme the group's focus is primarily on asset management and the business now aims to grow revenue while continuing to contain costs.

Cadiz Asset Management is committed to delivering strong long-term investment performance to institutional and high net worth clients, driven by its valuation-based investment philosophy. The business has invested in its investment team, operating platform and IT systems to deliver the required performance across its multi-asset, equity, fixed income and structured product mandates and to attract higher yielding
mandates to improve margins and grow the asset base in the medium term. While the turnaround is proceeding more slowly than anticipated, the strategy will ultimately
lead to improved financial performance.

Cadiz Corporate Solutions has a healthy deal pipeline and will continue to focus on the resources, infrastructure and renewable energy sectors. In line with the previously communicated plan to implement an equity participation scheme, the board has agreed to sell 30% of the corporate advisory business to the staff effective from 1 April 2013 and is in the process of finalising the transaction.

The group continues to retain a prudent capital base and intends to distribute annual profits, adjusted for the non-cash impact of the associates, to shareholders.

BNP Paribas Cadiz Securities will continue to focus on increasing its penetration with both domestic and international investors.

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