Peregrine. Will this eagle's shares soar again?

​​Date: 13June 2018
Category: Stock Market

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We keep a keen on on the South African stock market, and we have always been particularly fond of lesser known asset manager and hedge fund manager Peregrine (PGR). 

They extremely cash generative, serve a particular niche market and they have a strong foothold in the segment they operate it. And to our bitter disappointment the share price performance of the group has been less than flattering in the recent past. Partly because their earnings are directly linked to the performance of the markets, which has been less than stellar in recent times.

Peregrine share price history. Currently trading at R20.80 a share

The graphic below shows the share price history of Peregrine over the last 5 years. While their latest financial performance did not shoot any lights out and looks rather flat, encouraging to see is the increase in the dividend payout announced by the group.

Percent change:

The following commentary was made by Peregrine on their latest set of financial results published:

The 12 months ended 31 March 2018 was a reasonable year for markets despite the significant political uncertainty during the period, both locally and internationally. Whilst geopolitical headlines did not seem to dramatically disrupt global equity markets, locally the Group felt the impact of volatility in local equity markets and the strengthening of the Rand against the US Dollar and GB Pound. Whilst the election of Mr Ramaphosa was a welcome outcome for the country, the impact of "Ramaphoria" has not yet translated into an economic resurgence, as was evident in the contraction in GDP in the first quarter of 2018.

Within the context of this environment, the Group performed well and delivered solid results. As a result of the unbundling of the Group's surplus non-operating assets during the period under review, for ease of comparability, the Group's results for the 12 months ended 31 March 2018 have been presented in such a way so as to separate earnings from the Group's operating businesses from earnings that arose from the Group's surplus non-operating assets. The main operating businesses in the Group, namely Citadel, Stenham, Peregrine Capital, Peregrine Securities and Java Capital, delivered an increase in earnings of 7% to R470 million. There was strong growth in annuity earnings from Citadel and increased performance fees from Citadel, Peregrine Capital and Stenham Asset Management, countered by a reduction in earnings from Peregrine Securities where revenues were lower primarily as a result of a reduction in higher margin revenue from retail and hedge fund clients. Similarly, Java Capital produced lower earnings primarily as a result of a weaker environment in both general corporate finance and in capital raising (particularly property markets) during the latter part of the financial year.

Across the operating businesses of the Group, annuity earnings grew by 6% to R362 million and accounted for 77% (2017: 78%) of the aggregate earnings of the operating businesses. Variable and performance fee earnings increased by 9% to R108 million, in the main due to higher performance fees earned across the Group, partially offset by lower variable earnings in Peregrine Securities. Almost every business in the Group benefits from a weaker Rand with 42% (33% at the interim reporting stage) of the Group's operating earnings emanating directly from offshore entities in the period under review. It is unsurprising that the strengthening of the Rand against the GB Pound and the US Dollar in the financial year under review had a meaningful yet negative impact on the Group's translated earnings. Adjusting for the impact of this strengthening, headline earnings at an attributable operating level would have grown by 13%. Included in the results for the last time are earnings from proprietary investments which increased by 11% to R65 million. As previously communicated to investors, in order to remove the unpredictable and volatile returns associated with these investments, the decision was made to unbundle these investments effective 2 October 2017 (discussed in more detail later on in this announcement). The Group continues to implement its strategy of reinforcing its offering as a highly cash generative, low capital intensive, high return on equity business."

With headline earnings per share sitting at R2.38 and dividend payout of R1.70 it places Peregrine on a PE ratio of 8.73 which is not demanding at all and a dividend yield of 8.2%. It should therefore be no surprise to readers that we like Peregrine shares at their current price. In addition to the strong dividend and low PE ratio, PGR generates R1.86 per share in cash from their operations, which shows the business is pretty cash flush and cash generative.

But in the interest of being thorough we will compare the share price performance of Peregrine against Coronation Fund Managers (CML) to put their recent share price performance in perspective against a more well known peer. 
So the above graphic shows its not just the lesser known financial stocks feeling the heat of the markets. The two images below shows the share price performance of Peregrine and Coronation for the last 12months and for the last 5 years.

12 Months

Peregrine (PGR) and Coronation Fund Managers (CML) 12 month share price performance is shown below:

Peregrine: -31.23%
​Coronation: -10.92

5 Years

​Peregrine (PGR) and Coronation Fund Managers (CML) 12 month share price performance is shown below:

Peregrine: 70.13%
​Coronation: -5.10%
Based on the images above, it is clear that while over the shorter term Peregrine has been punished by Mr Market a lot harder than Coronation, when looking at the longer time span of say 5 years, Coronation gets an absolute beating from Peregrine.

And based on Peregrine's results announced today and their fundamentals, we suspect Peregrine shares will start eating into Coronation's advantage over the shorter time periods. We tip this eagle to soar.

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