| Fri 13 Feb 2004, 9:30 | | Peregrine has absorbed Citadel |
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Peregrine has absorbed Citadel acquisition and will be debt-free by March, says chief
February 13, 2004
By Vernon Wessels
Johannesburg - Peregrine, the wealth and asset management company, had absorbed the acquisition of Citadel and would be free of external debt by March, the end of its financial year, chief executive Sean Melnick said yesterday.
Peregrine acquired Citadel, a private wealth management firm, towards the end of 2002 for R300 million, some of which was financed through loans.
Now that the debt had been paid off Peregrine would be better placed to pay a dividend in the next financial year should cash flows remain strong, he said.
Peregrine produced cash of R90 million from operating activities in the previous financial year. Although Melnick admitted that R30 million of this was because it "sweated working capital", he felt the company was in a better financial position now than ever before.
It produced cash of R50 million in the six months to September. The company had taken the pain of exiting high-risk businesses such as investment banking, advisory, asset finance and treasury solutions business to focus only on wealth management and alternative investment management services, such as hedge funds.
Its hedge fund business, Peregrine Capital, was expected to grow assets under management to R1.2 billion in the next few months from R400 million as at the end of March last year, and R900 million now.
Citadel, which has portfolios geared mostly to offshore markets, had assets under management of about R8 billion.
Its current average monthly inflows were R96 million compared with a long-term average of R100 million because of tough markets and a strengthening rand.
Its client retention rate had improved to 98.3 percent from 97 percent. The average client with Citadel had about R3.5 million invested with the firm.
"We now want to take each R100 million that flows into various wealth and asset management businesses and make this count towards our bottom line," Melnick said.
The six months to September were tough for Peregrine, which despite the strong cash flows saw headline earnings a share fall 17 percent to 15.6c, after it disposed non-core businesses, issued more shares and paid interest on the Citadel acquisition.
"We have found that, historically, our second half is below the first half due to the quieter December period ... but we would be disappointed if we did not match the second half with the first half," he said.
"There are still six weeks left though and it is difficult to say what our numbers will look like, given they are still dependent on the performance of the markets."
The company would still focus on cash generation.
"If, in a worst-case scenario, there is only R80 million cash generated this year ... because markets were not kind to us, we will not have a problem with that.
"From a long-term perspective, we are not going to be caught in a cycle where we are forced to grow at 20 percent a year because our investors demand that of us.
"We would rather have investors who understand there is a base and come hell or high water we will make that base and with the certainty that in the good years we will make an enormous amount of money," he said.
An analyst, who did not want to be named, said it "will be nice to see a clean set of numbers" from Peregrine following the obfuscation of disposals and acquisitions, which were now behind the company.
The interests of the management pool, which holds 60 percent of the company, were well aligned with those of investors, of which about 30 percent were institutional and 10 percent private shareholders, the analyst said.
The shares closed unchanged at R2.30 yesterday.
