Sygnia recently released its interim results for end-March 2025, and the business continues to perform well, though not spectacularly.
All the main metrics were up in the mid- to high teens. The dividend was also nudged up by almost 9%. Overall, there was nothing too surprising or too disappointing for shareholders.
However, there are some significant macro tailwinds behind Sygnia’s future earnings potential. These tailwinds are not immediately apparent in the latest results but are driving momentum in Sygnia’s underlying business and are expected to continue doing so.
The first — whose effect wasn’t captured in the latest interim results as it only came into effect on April 9 — is the introduction of platform or administration fees for Sygnia accounts. Historically, Sygnia has never charged such fees, even though they’re commonplace among its competitors.
For those with assets on the Sygnia platform valued at less than R2m, the fee is 0.35%. For assets valued between R2m and R10m, the fee is 0.15%. Assets valued at R10m or more are exempt. Sygnia says these fees cover increased costs, such as technology upgrades related to the two-pot retirement system, additional compliance costs and general operating expenses.
Given that Sygnia is already profitable even before these fees kick in and they require no further investment in staff or capital, it is fair to assume that a large portion of these fees will be reflected in the profit line at Sygnia over the second-half results and beyond. While these fees will affect only the retail side of the business, which constitutes about 20% of Sygnia’s assets under management, it should still be a nice kicker to earnings.
The second is the two-pot retirement changes, which came into effect in September 2024 after numerous delays and represent a shake-up of the retirement landscape. The new system allows investors to access up to a third of their retirement savings before retirement, subject to specific annual limits. The other two-thirds are locked away and inaccessible until retirement age, now set at 55 in most cases.
Gone are the days when people would cash out their pensions upon quitting their jobs or being retrenched instead of transferring their retirement balance into a preservation fund for actual retirement.
Gone are the days when people would cash out their pensions upon quitting their jobs or being retrenched
While there are some grandfathering provisions for assets invested before September 2024, over the next few years the quantum of assets quarantined in retirement funds run by Sygnia, and the rest of the industry, will remain there for decades.
This is a slow-burn effect but a powerful one for Sygnia if it can retain and grow its retirement business, as the net present value of the fees to be generated from these long-term locked-up assets will increase materially.
Third, there is a shift away from actively managed products to passively managed products across the South African investment landscape. Recent research indicates that industry-wide assets under passive management in the country are about 10%, growing at a rate of 20% per year.
Sygnia is one of the largest providers of passive management products in the local market and should capture its fair share of this growth in the coming years. In the UK, assets under passive management account for 33% of total industry assets. If the South African market follows this trend, Sygnia is nicely positioned to benefit.
Even if South Africa doesn’t reach UK levels, a doubling from 10% to 20% is still a significant increase of assets, considering that industry-wide assets under management total about R3.5-trillion.
Finally, Sygnia can still roll out multiple new passive ETF strategies. In the interim results, this was the one fly in the ointment, as assets under management in the ETF division remained static at R45bn. Sygnia seems uninterested in growing this part of its business despite the latent potential.
Sygnia now has 14 ETFs in its Itrix range, while competitor Satrix has 38. Even just offering a competitor product to the full Satrix line-up would be a start. It would also be a low-risk strategy, given the proven appetite for the product.
It should also become easier and more profitable to roll out new ETF products now that the underlying infrastructure is in place.
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