It’s always fun tracking the progress of a disruptor. In the asset management industry, Sygnia fits that description. The share price has nearly doubled over the past 3 years and is up almost 20% in the past month after drifting lower for the first few months of 2022. Can the growth continue?

Before digging into Sygnia’s latest results, let’s give the numbers some context. By the end of March, Coronation had assets under management (AUM) of R625 billion. Sygnia has assets under management and administration of R295.3 billion.

Now, there’s an important nuance there. AUM attracts the best fee, with assets under administration attracting a lower fee as there isn’t discretion over the asset allocation decision. Sygnia has built its business around passive investments, with the differentiator being clever marketing around products that track interesting underlying indices.

Sygnia is the second-largest provider of ETFs in South Africa and the largest provider of international ETFs on the JSE. I mean really, who hasn’t heard of the Sygnia 4th Industrial Revolution fund?

Another relevant nugget of information is that Sygnia operates the sixth-largest commercial umbrella fund in South Africa, with around R12.5 billion under management.

In the six months to March, Sygnia generated revenue of R397.4 million. Over the same period, Coronation generated R1,934 million in revenue, 4.87x higher than Sygnia off an asset base that is only 2.12x larger. This is the impact of the AUM vs. assets under administration strategy.

This isn’t a criticism of Sygnia at all. It’s just very important as an investor to understand the business model.

At first blush, it looks like revenue grew faster than assets, which suggests a positive change in mix. A more detailed read shows that average assets under management and administration increased by 15.3% and revenue linked to assets increased by 10.6%, so that reveals quite the opposite. A promising story on the revenue line is that treasury, securities lending and brokerage income increased by 24.5%. The blended outcome is 13.4% growth in revenue.

An increase in value of assets under management and administration of R4.5 billion helped offset most of the R5.6 billion net outflow in this period, compared to net inflows of R3.8 billion in the prior comparative period. It’s important to highlight that R241.2 billion of assets are institutional and this business experienced a R9.2 billion net outflow, of which R7.2 billion relates to a mutually agreed termination of a low margin client.

Looking through this noise, R3.6 billion in net inflows in the retail business shows how the South African retail investor community is maturing. They are buying market weakness rather than running away from it.

The revenue growth in this period was strong enough to drive headline earnings per share (HEPS) growth of 23.8% as benefits of scale were achieved. HEPS came in at 92.6 cents.

The interim dividend is 80 cents per share, up from 55 cents a year ago.

Sygnia’s share price of around R18.50 suggests an annualised Price/Earnings multiple of around 10x. Sygnia isn’t trading at a bargain price, so punters may want to watch it carefully for any pullback to the traded channel of around R15.50 to R17.00. Those happy to take a longer-term view on Sygnia would need to believe in continued disruption of the establishment by this group, with a track record to back that up.