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DEAL OF THE WEEK – CORONATION’S HCI PUNT

24 Jan General

CFM increased its stake in HCI

One of SA’s largest asset management companies, Coronation Fund Managers (CFM), has taken a sizeable punt on empowerment conglomerate Hosken Consolidated Investments (HCI).

Last week CFM increased its stake in HCI from 1,07% (excluding a 0,35% stake held through Coronation Life) to 5,48%. That increases the value of CFM’s holding in HCI from around R150m to almost R800m. CFM now ranks as the second-largest shareholder in HCI after the investment arm of the SA Clothing & Textile Workers Union, which holds a 36,71% stake.

HCI is one of the JSE’s most successful empowerment investment companies, with a market value of over R14bn. The company, which is underpinned by a 50% stake in gaming group Tsogo Sun and a controlling stake in free-to-air television company e.tv, recently partially unbundled certain of its growth assets into a separately listed entity, Niveus.

It’s not common to see fund managers taking “notifiable” minority stakes in large-cap counters. But a market watcher, who asked not to be named, points out that strong investment inflows from clients do present a challenge for CFM as to where to invest new money in current market conditions.

Under the leadership of CEO Hugo Nelson, CFM has rapidly grown assets under management in recent years. Between end-September 2011 and a year later, CFM grew its assets under management 37% to R339bn.

At that point Nelson said that as an independent fund manager, CFM’s reputation depended on its ability to outperform the market. “Given the size of our institutional business, domestic equity market capacity pressures are felt more acutely.”

At the end of 2012, CFM closed its Balanced and Absolute Return product ranges to new clients. It closed its SA equity products to new business in April last year.

The market watcher believes increasing CFM’s stake in HCI is probably a prudent option. “It is buying a well-diversified company with strong, cash-generative assets at a substantial discount.”

Independent Securities researcher Lance Faure values HCI at R129,12/share.

In recent months CFM has made significant, notifiable investments in JSE-listed counters like the Times Media Group (co-owner of the FM) and revamped property share Fairvest.

The lowdown

CFM flexes its portfolio muscle

It’s now the second – largest shareholder in HCI

It’s a good place to park fund flows

One of SA’s largest asset management companies

Source: Financial Mail – Marc Hasenfuss