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By Garreth Montano
The Corion Prime Concentrated Equity Fund (Concentrated Equity) is designed to take advantage of a much broader range of opportunities than larger equity funds in South Africa. Much has been spoken about the inability of larger funds to navigate the mid and small cap space, due to their sheer scale. So, it is unlikely that many managers will allocate to smaller capitalisation shares, let alone those not even listed on the JSE.
Corion embraces managers that are willing to explore less-mainstream opportunities and go beyond the “flock stocks”. One of Concentrated Equity’s managers, Greg Saffy, has identified, what he believes, is an exciting opportunity. The company is Assupol and is listed on the smaller and lesser-known Cape Town Stock Exchange.
Assupol is a niche insurance business that has been in existence since 1913. Most of their income is derived from funeral policies. What differentiates their offering is that they are integrated into the government payroll system, Persal. Due to premiums being deducted directly from payroll, policy lapses are much lower than in the traditional space.
A popular valuation metric for an insurance company is referencing the “embedded value” of the business. The embedded value measures the value of the insurance company by taking into account the present value of future policy premiums plus capital. Greg’s premise is that while the majority of listed peers on the JSE are trading on a discount to embedded value of around 20%, Assupol trades at an approximate 50% discount. In addition to this discount, Assupol is offering an attractive dividend yield of 12%. One can argue that due to the much lower liquidity, and being listed on a fringe exchange, that the discount may be justified. However, as is often the case with our manager’s stock selections, there is a potential catalyst to unlock value.
Greg believes that a shareholder restructure is likely and that there is a potential for a strategic partner to buy into Assupol. Should this transpire, it is unlikely that shares will change hands anywhere near the discount to embedded value that the share is currently trading at. Corion Prime Concentrated Equity currently has a 3,5% exposure to Assupol.
The end of September marked the two-year anniversary of Corion Prime Concentrated Equity. Managing clients’ savings and investment is an immense responsibility. A lot of analysis, discourse and investigation goes into the launch of a new concept and fund. However, any active asset management decision comes with risk, and given the turmoil in global markets since the launch of the Corion Prime Concentrated Equity Fund, Corion’s investment rational and process has been put to the test.
Despite global markets selling off dramatically, the JSE and Concentrated Equity have held up well. Opportunity still abounds in the South African market, and valuations continue to look compelling relative to global markets as well as historic valuations. The likes of Assupol offer great potential upside for our investors.
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