I will miss ccap, the exit price is below my average but I did add considerably years ago at sub 20 and with the dividends over the years hunk I am in a small profit
They just could not regain their AUM and too small,to attract big successful managers to make them known. Ah well,, plough my 15k value into a smaller U.K. Dividend fund, safer and less volatile..
I've followed but these will surely bounce back one day?
Emerging market asset manager Charlemagne Capital (CCAP: 11p), a constituent of my 2014 Bargain shares portfolio, has issued a disappointing trading update and one that has persuaded me to call time on the holding.
AUM fell by 8.6 per cent from US$2.28bn to US$2.08bn in the second quarter of this year, mainly reflecting the loss of a single mandate worth US$182m and spread across Charlemagnes Magna funds and a segregated account. The company has not been helped by last months market downturn which has resulted in the MSCI Emerging markets index posting only a 0.7 per cent gain in the second quarter and a modest 2.7 per cent rise in the first half. There have been substantial investment outflows from the emerging market space of US$21.5bn in the first half alone, an acceleration on the outflows seen in both 2013 and 2014.
So although Charlemagnes funds have performed generally well, the companys AUM are now $400m shy of the level required to make sustainable profits on a recurring basis. Market performance, growth in assets and the generation of performance fees during the second half will be significant factors in determining the full year profit outcome. As a result analyst Andrew Watson at broking house N+1 Singer has cut his management fee income forecast by a fifth and now expects the company to only post pre-tax profits of $1.4m on revenues of $27.3m, rather than profits of $7.8m based on full-year revenues increasing by $4.4m to $33m as previously forecast when I last updated the investment case (Lights camera, action, 21 May 2015). In turn, the company is now expected to post a loss per share of 0.5¢ (0.32p) rather than more than double EPS to 1.1¢ (0.7p).
This means that if the board maintains the dividend of 1¢ (0.65p) a share, it will have to dip into the companys cash reserves to do so as was the case in 2014. At the start of this year, the company had net funds of $17.4m on its balance sheet equating to 3.8p a share and $9.9m invested in its own funds, a sum equivalent to 2.2p a share. True, thats solid asset backing, but with no respite in sight for emerging markets I am really struggling to see where the catalysts will emerge for the share price to recover.
So having upgraded the shares to a trading buy at 10.75p (Below the radar, 19 March 2015), and changed that recommendation to hold at 13.5p a couple of months ago (Lights camera, action, 21 May 2015), I think its best to sell. I included the shares at 15.8p in my 2014 Bargain share portfolio, so even after factoring in total dividends of 1.24p a share paid in the interim period, the net loss on this holding is 25 per cent.
The key take for me in Charlemagnes first quarter trading update was the performance of the company's long-short OCCO Eastern European fund, accounting for $515m (£332m) of the companys assets under management (AUM) of $2.28bn. The fund has so far delivered a positive 4 per cent return in the first 14 weeks of the fiscal year which is important because performance fees earned from the OCCO fund account for the vast majority of Charlemagne's own performance fees.
So with analyst Andrew Watson at broking house N+1 Singer factoring in an investment return of 6 per cent in his 2015 estimates, then progress to date augurs well for a strong bounce back in profits following last years annus horabilis in emerging markets which devastated performance fee income. Mr Watson is maintaining his forecast that Charlemagnes pre-tax profits will rise from $3.1m in 2014 to $7.8m this year based on full-year revenues increasing by $4.4m to $33m. On this basis, the company would more than double EPS to 1.1¢ (0.73p) which in turn covers a maintained dividend of 1¢ (0.65p), based on a 100 per cent payout policy, and means that the shares are now trading on 19 times earnings estimates and offer a dividend yield of 5 per cent.
On the face of it, the prospective earnings multiple may seem full, but its worth pointing out that the company has a rock solid balance sheet: net cash of $17.4m equates to 3.8p a share and Charlemagne also has $9.9m invested in its own funds, or the equivalent of 2.2p a share. On a cash-adjusted basis, the forward PE ratio is actually only 10.5 which is still attractive for a company in recovery mode.
In the circumstances, I continue to see potential upside in the shares, albeit this is predicated on price stability in emerging markets and no reccurrence of the factors which led to the heightened risk aversion in these markets last year. So if you followed my earlier advice, I would continue to hold onto your positions with Charlemagnes shares trading on a bid-offer spread of 13p to 13.5p.
There has been a deluge of company results this month, so it's not surprising that some of the releases in the small cap segment of the market have fallen below the radar of investors. But it still pays to run the rule over the minnows of the stock market in order to take advantage of under researched value opportunities.
Bearing this in mind, I feel that investors are missing a trick with emerging market fund manager Charlemagne Capital
(CCAP:10.75p). Admittedly, after enduring an 'annus horribilis' in 2014, many investors will be giving this particular segment of the equity market a wide berth. And it's only right to flag up that I included the shares in my 2014 Bargain share portfolio when the price was 16p, so the holding is still under water with them being offered in the market at 10.5p, valuing the company's equity at only £31m.
But having analysed the trading update from the company this week, and more importantly how the business has fared since the start of 2015, I feel that there is an increasing chance of a share price re-rating for a number of reasons that have come to light since I updated my Bargain share portfolio six weeks ago.
Sound reasons for profit recovery
Firstly, the company's long-short OCCO fund, accounting for $525m (£357m) of Charlemagne's assets under management (AUM) of $2.25bn, has already delivered a positive 4.2 per cent return in the first 11 weeks of the 2015 fiscal year. This follows a negative return of 2.6 per cent in 2014, albeit that was a robust showing against the 37 per cent decline in the MSCI Eastern European index. The fund had provided investors with a compound annual growth rate in excess of 10 per cent in the previous 12 years, so has a decent track record.
Critically, performance fees earned from the OCCO fund account for the vast majority ($15.6m in 2013, but only $20,000 in 2014) of Charlemagne's own performance fees. This explains why the company's total performance fee income fell from $16.2m in 2013 to $2.4m last year and resulted in pre-tax profit and EPS declining by two-thirds to £3.1m and 0.5¢, respectively, on revenues down around 30 per cent to $28.5m.
It's therefore worth noting that analyst Andrew Watson at broking house N+1 Singer has embedded an investment return of only 6 per cent in his 2015 estimates, predicting a strong recovery in pre-tax profits to $7.6m for 2015 based on full-year revenues rising by $4.5m to $33m. The 4.2 per cent positive return from OCCO in the year to date not only gives confidence that these forecasts are achievable, but offers scope for potential upgrades if the recovery continues.
It's also worth flagging up that Charlemagne's Magna fund range continues to prosper too, attracting net inflows of $166m last year and increasing total AUM by 17 per cent to $654m. The performance of Charlemagne's Magna Middle East and North American fund was ranked first in its peer group in 2014 and in the top quartile over a three-year period according to FactSet Morningstar. In addition, four of the eight Magna funds were in the first quartile for their performance over the same three year period too. That's a major selling point for the company as it has now entered a potentially transformational agreement with US marketing adviser North Bridge Capital to help Charlemagne build a presence in the US institutional investment market.
I would also point out that the latest funds data shows that by the end of February this year Charlemagne's AUM had increased by 3.7 per cent to $2.33bn since the start of 2015. This is worth bearing in mind as the company is due to release its first-quarter AUM trading update at the start of April. It could make for a good read. There is an operational gearing effect on profits from rising AUM as the company is able to absorb a significant increase in AUM, but with a negligible impact on its core costs. Again, this gives credence to N+
Specialist emerging markets asset manager Charlemagne Capital
(CCAP: 10.5p) has issued a profit warning following a 13.2 per cent decline in assets under management (AUM) in the fourth quarter of last year.
The MSCI emerging market index declined almost 6 per cent in the three-month period and with investors taking cover, this led to a $193m (£128m) capital outflow from Charlemagne's funds. AUM declined from $2.59bn to $2.25bn in the fourth quarter.
This was the second successive year of outflows in excess of $25bn from the emerging markets arena. So although Charlemagne's net management fees were actually up 8 per cent over the 12-month period to £25.8m, net performance fees were decimated and, at £2.4m, were well below the £16.2m earned in 2013. The net effect is that analyst Andrew Watson at brokerage N+1 Singer now expects Charlemagne to report revenues down 31 per cent to £28.5m for fiscal 2014 which translates into a two thirds decline in pre-tax profits and EPS to £3.1m and 0.5 cents, respectively.
There are positives though. Firstly, given the company has net cash and liquid investments of $24m, or the equivalent of 5.5p a share - the board will pay a second uncovered interim dividend of 0.5 cents to make a total of 1 cent for the reporting period. On this basis, the dividend yield is 6.3 per cent.
Secondly, the company has announced what is a transformational agreement with US marketing adviser North Bridge Capital to help Charlemagne build a presence in the US institutional investment market. Of Charlemagne's strategies, its core emerging markets, Latin American and its specialist Magna Middle East and North American funds all outperformed last year. Moreover, until last year, its long-short OCCO fund, accounting for 23 per cent of the latest AUM and which has previously generated the majority of the performance fees, had enjoyed a solid long-term track record. Between 2002 and 2013 the fund had provided investors with a compound annual growth rate of over 10 per cent.
As part of the agreement, North Bridge has been granted options over 1 per cent of Charlemagne's issued share capital, subject to $100m of AUM being raised under the agreement. Subsequent options may be granted up to a maximum of 9.9 per cent of the company's share capital provided $2bn of AUM has been raised.
True, the outlook is far from certain and the recovery in the emerging market space which I had anticipated when I recommended buying the shares at 16p in my 2014 Bargain share portfolio clearly failed to materialise. But the outperformance of the company's core long-only funds, which actually enjoyed net inflows last year, highlights the ability of Charlemagne's asset managers. Moreover, the collapse of the Eastern European markets - the MSCI Eastern European Index declined 26.8 per cent in the fourth quarter of 2014 - combined with the collapse in the oil price (down by 42 per cent in the three-month period) are extreme one-off events, which has led to heightened investor risk aversion.
In the circumstances, I do feel that N+1 Singer's estimates for 2015 are not pie in the sky: Mr Watson is predicting revenues of $33m, pre-tax profits of $7.6m, EPS of 1 cent and a maintained dividend of 1 cent. That's because a chunk of the redemptions last year were low margin institutional mandates and if the North Bridge agreement attracts the new funds that Charlemagne is anticipating then this could increase management fees sharply.
It goes without saying that after four years of underperformance by emerging markets in general, then Charlemagne's portfolio of funds are well placed to capture investment flows in the event of a recovery. It's worth noting, too, that N+1 Singer's estimates only factor in an underlying investment performance of 4 per cent on Charlemagne's portfolios apart from its long-short OCCO fund where it
Specialist emerging markets asset manager Charlemagne Capital
(CCAP: 14.5p) has been operating in very volatile markets this year, so I take it as a positive that the company managed to report modest growth in assets under management (AUM) in the first half.
In fact, having seen AUM decline by 5.5 per cent in the first quarter, the company reported almost 10 per cent growth in the second quarter to end the half year with AUM of $2.83bn, or $100m more than at the start of the year. This primarily reflects continued inflows into its Magna mutual funds. Charlemagne's emerging market income and growth strategies enjoyed notable inflows, a trend that is set to continue according to analysts. Over the past 18 months, net inflows into the Magna range of funds have totalled $317m and have been buoyed by a doubling of the number of products on offer, highlighting their popularity.
Performance fees impacted by low returns
That said, there is no getting away from the fact that the ongoing uncertain geopolitical situation in Russia is having an impact on the performance of the companys long-short OCCO fund, accounting for around a quarter of AUM and which generated two thirds of the $23.9m performance fees earned by the company last year after adjusting for minority interests.
OCCO has a solid long term track record and has provided investors with a compound annual growth rate of over 10 per cent for the last 12 years. However, 2014 has so far been a challenging year for Charlemagnes OCCO Eastern European Fund which has delivered flat performance during the latest six month period, largely due to the unfavourable backdrop in Russia. As the fund's strategy is focused on generating alpha through its bottom up research process, the investment strategy sometimes struggles in markets which are primarily dominated by top down drivers. That said the MSCI Russia and benchmark Eastern European indices are each down by over 10 per cent this year, so the fund has clearly delivered on its mandate of being an absolute return fund. The problem is that although OCCO has outperformed benchmarks on a relative basis, the absence of absolute performance means that performance fees for the full-year will be impacted.
In fact, analyst Andrew Watson at broking house N+1 Singer only expects Charlemagne to earn $900,000 of performance fees this year in aggregate and management fees of $26.2m. As a result he now expects full-year pre-tax profits of $4.2m on revenues of $28.4m, down from $9.5m and $41.3m in 2013. On this basis, adjusted EPS halves from 1.4 cents to 0.7 cents and means last years 1.5 cents dividend is uncovered.
The companys policy is to payout all its net profits as dividends and has declared a 0.5 cents (0.3p) payout for the latest half year even though EPS of 0.11 cents for the period means it was uncovered. That said, Charlemagne has net cash and investments worth £18.3m on its balance sheet, or the equivalent of 6.5p a share, so has the cash available to do so. Mr Watson is predicting a final dividend of 0.2 cents based on the reduced EPS estimates this year, although the board could again use some of that cash pile to cover the earnings shortfall especially if there is an improvement in the emerging market spectrum in the next six months.
Potential for earnings rebound
Bearing that in mind, Charlemagnes directors note that emerging markets have continued to rally in August and have now outperformed developed markets since the start of the year. This is based on optimism that policy risk is generally lower, with meaningful reforms in some key emerging economies, while many investors remain underweight in the asset class. Moreover, the heavy outflows from emerging markets equity earlier this year have started to reverse too. While the initial beneficiaries of this rally have included some larger, laggard stocks, if this trend continues then it is
If you search for companies with a MCAP of between 15m and 300m (or more sometimes), ROCE of 12% or greater, peg factor of 0.75 or less, volume (Mid January would have been a good time to buy) and importantly strong money flow. CCAP falls into this catergory!
Charlemagne Capital Ltd (CCAP:LSE)
(CCAP) is a specialist emerging markets asset manager, entirely independent of any other group, run by a team of dedicated investment professionals who own around 40 per cent of the company's share capital.
That means that they benefit from both the highs and the lows. There have certainly been enough of the latter since the company listed its shares at 100p eight years ago. However, a pre-close trading update a few weeks ago indicated that the business has clearly turned the corner. Add to that an attractive decent dividend yield and a rock solid balance sheet, and there are enough positives to believe that investing now is going to pay off in the coming year.
In the final quarter of 2013, Charlemagne's assets under management rose 7 per cent to $2.73bn (Â£1.65bn) to boost second half revenues by almost 13 per cent. As a result total revenue for last year was up more than a third to $41.3m, split 60:40 between management and performance fees. Fee income was helped by the fact that six out of Charlemagneâs nine Magna funds achieved first quartile performance in their market segments over the year, which in turn attracted net flows into these funds. In particular, Global Emerging Markets and Eastern European and Frontier strategies enjoyed notable inflows. In fact, there were net fund inflows into all categories in the final quarter and over the year too, in stark contrast to the industry which saw a net fund outflow in 2013.
Last year was primarily about stock picking in emerging markets, a theme that is likely to continue in 2014 in the absence of a strong rally in risk assets. In this environment, one would expect Charlemagneâs investment strategies to continue to outperform and attract further inflows. For instance, its long-short OCCO fund, accounting for around a quarter of assets under management, continues to perform well and generated two thirds of the $23.9m performance fees earned by the company last year after adjusting for minority interests. In turn, this is good news for both earnings and dividends.
Following upgrades of around 8 per cent to net earnings post last month's trading update, brokerage N+1 Singer predict that the company's 2013 pre-tax profits and EPS will more than double to $11m and 1.4c, respectively, and pencil in a full-year dividend of 1.5c. The respective forecasts for 2014 are revenues of $42.6m, pre-tax profits of $12.1m and EPS of 2.1c, or 1.3p. On this basis, expect the dividend to be raised to 2.1c in 2014 given the board's policy of paying out all net earnings to shareholders. This means that the shares are currently trading on a forward PE ratio of 13 for 2014 and offer a very attractive prospective yield of 7.7 per cent.
It's also worth considering that net funds are around $25.4m, or Â£15.4m. This equates to 5.3p a share. Strip this sum out from Charlemagneâs current share price and the cash adjusted PE ratio is less than nine for 2014, a rating that seems harsh for a company that is now attracting fund inflows once again.
On a bargain rating of 0.33, the shares are a decent income buy and one where any recovery in emerging markets later this year is in the price for free.
Charlemagne Capital Limited (LON:CCAP) had its target price lifted by JPMorgan Chase & Co. from GBX 13 ($0.21) to GBX 15 ($0.25) in a research note released on Friday morning, American Banking & Market News reports. They currently have an underweight rating on the stock.
JPMorgan Chase & Co. has also updated their ratings on a number of other stocks in the last week. The firm upgraded shares of Statoil from a neutral rating to an overweight rating. Also, JPMorgan Chase & Co. reiterated its overweight rating on shares of Barclays. Finally, JPMorgan Chase & Co. raised its price target on shares of Valeant Pharmaceuticals from $125.00 to $140.00.
Charlemagne Capital Limited (LON:CCAP) traded down 1.75% during mid-day trading on Friday, hitting GBX 14.00. The stock had a trading volume of 227,860 shares. Charlemagne Capital Limited has a one year low of GBX 8.526 and a one year high of GBX 16.25. The stocks 50-day moving average is GBX 14.39 and its 200-day moving average is GBX 13.5.
Charlemagne Capital Limited is engaged in asset management and related activities. The Company has categories of funds: magna mutual funds, OCCO hedge funds, institutional vehicles and specialist funds.
While a lot of lip service is paid to value investing as a concept, what actually constitutes a "value" situation can be a bit of a grey area. Should investors be looking for stocks trading on a low multiple of earnings, or perhaps those with high yields, then there is the question of undervalued growth, and what about companies that have cash on their balance sheet that is being overlooked?
While these are far from the only measures of value, we have recently tried to bring all these ideas together in a single metric that we somewhat portentously called the "genuine value ratio"(GV). Having previously back-tested the ratio and run a screen using the ratio on the FTSE All-Share constituents (Screening for genuine value, 6 Mar 2013), we're back to search for "genuine value" among small caps and Aim stocks.
In the second half of its last financial year, Charlemagne (CCAP) had something of a watershed moment when it began to generate net inflows of money into its funds. The company specialises in emerging market equities and is benefiting from increased appetite for this area. Management has been keeping a tight rein on costs and profits are very sensitive to increases in revenue. The company is currently paying out all its earnings as dividends, which gives rise to broker Singer N+1 forecasting a bumper yield of 8.4 per cent in the current year based on a 1.4¢ (0.92p) payout followed by 2.1¢, or 12.6 per cent, the year after. The forecast PE is modest compared with the mid-teen rating commanded by larger asset managers, but the group's small size does suggest a discount is in order. That said, the current scale of the operation means there is potential for very fast growth, which is what brokers are predicting.
Market Cap Price DY Fwd PE GV Ratio
£31m 11p 5.6% 14 0.07
EPS Growth+1 EPS Growth+2 3yr EPS CAGR Net Cash* 3M momentum
71% 49% -30% $30m 2.3%
*Includes current investments of $2m
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