Coronation’s fat year not, as clients withdraw a net R44bn

Those massive airport billboards advising us who we should trust with our savings aren’t working like they once did. Financials released yesterday by “Trust Is Earned” asset manager Coronation also explain a share price that’s halved in the past year. Coronation clients, we read, are withdrawing money at an unprecedented rate: pulling a staggering R44bn from the asset manager in the 12 months to end September.

On the upside, Coronation still retains a chunky R571bn under management. And despite 2019’s record annual outflow, its base still generated fees that allowed dividends of over R1bn to be paid to shareholders. That’s down 19% on 2018’s payout, but surely sufficient to keep Team Coronation (and airport advertising vendors) in the style to which their percentage-of-assets business model has made them accustomed.

For how much longer, though, is a moot point. The company’s report mentions the long-term trend away from active to passive funds. Even worse, a new dark cloud has emerged on the Coronation horizon. Note six towards the end of the accounts discloses that the SA Revenue Services is unhappy at how the company reported on its international activities from 2012 to 2017. As they account for 40% of the profit, that’s a rather serious matter.

The dispute with SARS is being heard in the Tax Court. As you’d expect, the company’s management is “confident, supported by external advisors” of its case. What should be scaring shareholders is the quantum: “amounts involved are currently not considered capable of reliable estimation.” After many fat years, Coronation looks to be in for a rather leaner future. A warning to those attracted by the historic 7.8% dividend yield at the current share price.