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SIMON BROWN: I’m chatting now with Charles Savage, CEO of the Purple Group. A disclaimer upfront – I hold shares in Purple. Results out yesterday for the year-end August. Revenue up 0.8%. Heps was ‑2.05c/share. EasyEquities active clients up 17.5% at almost 900 000.
Read: Inflows down 28%; why EasyEquities had to implement ‘that’ R25 fee
Charles, I appreciate the time this morning. A tough year. I want to start with maybe a bigger picture type of question. You’ve been in the market a few years. Is it different, but as bad as 2008 to 2009? In some ways the last year or so feels worse, but maybe time has taken some of the pain off the memory of that 2008/2009 crisis.
CHARLES SAVAGE: Simon, I completely agree with you. I do think it’s worse than 2008. Back in 2008 we kind of knew what the problem was and the solution was swift and almost immediate. In this case the problems are much more diverse and we don’t all have the same problems. South Africa has a very different economic set of problems than other countries have, so I think it’s actually worse. Maybe it is age and these things feel worse as you get older, but certainly I think this is the toughest economic environment I’ve ever traded through.
SIMON BROWN: I take your point. The year 2008/9 was speedy. It was very V-shaped. This is not a V-shape at all. We are bundling in the valley.
Let’s move on to results. EasyEquities – clients growing, up 11%, inflows down 28% and change, but still at just short of R6 billion. Outflows R4.7 billion. That really is the story. You’ve seen a decrease in portfolio turnover, you’ve seen deposit-driven execution revenue down almost half. This is the crunch that is hurting the numbers in this period.
CHARLES SAVAGE: Yes, one hundred percent. Active client numbers were up 17.5%, assets up around 25%. Those are the two headline numbers that are really strong, and growing in this environment hasn’t been easy.
But people have less capacity to invest than they had 18 months ago, and that’s the true story of it. If you look at it, we’ve tracked our deposit rate in correlation to the interest-rate cycle, and for every interest-rate increase there’s been a commensurate decrease in the deposits from our customers, which really signifies that they have debt – and that cost of debt is costing them their investments right now.
SIMON BROWN: That makes sense. It’s tough out there. You’ve got less cash because you’re paying more on your bond, your vehicle, whatever. You’ve got less money to invest.
Outflows? Outflows at R4.7 billion. In one sense that seems like a big number, but it’s something that’s worrisome. It’s certainly moving in the wrong direction. Are clients taking out as well as putting in less?
CHARLES SAVAGE: In the context of this environment I’ve tracked all of our sort of competitor platform results, and I think all of them have indicated that they’ve had net outflows in their respective periods. We’ve got net inflows, so our customers are showing a level of resilience that is not evidenced through our competitors. So I think they’ve done really well in really tough times. So if the interest rates stay where they are and if I look forward 12 months, I think we’re going to see a loosening of interest rates. And with the commensurate decreases in those interest rates we should see deposit inflows and net deposit inflows improve. So I’m quite optimistic that this is the bottom of the cycle and that this is the worst pressure consumers will be under if I take a forward 12-month view.
SIMON BROWN: And if we look at just market activity – I was running the numbers last night – and back of a matchbox the JSE total return in the last 12 months is up about 7%, 7.5%. It’s not a terror number, it’s not a great number. If that was 15%, your numbers would probably be bigger.
CHARLES SAVAGE: Yes. I don’t know if you saw in the highlights, but our customers on average delivered 11.1% return over the period. So they outperformed the JSE . The point you’re making around the JSE – if you look at JSE volumes they must be down around 30% year on year. We can’t escape that environment. We’re part of that. We’re a stockbroker and the biggest part of our business is still South Africa. So the economic environment that we live inside is under excessive pressure and it’s hitting all participants.
Trading volumes are much lower than they were a year ago and fundamentally it’s because the consumer is under more pressure.
SIMON BROWN: You’ve got other operations; you’ve got bunches of them. The biggies are perhaps EasyCrypto and EasyProperties most notably. Revenue there R19 million collectively, down from R26 million. Are they profitable? Can they grow markedly? They seem very small in the bigger picture.
CHARLES SAVAGE: Look, it’s interesting. When you look at the group essentially all revenue makes a contribution towards profit because our platform capability comes at a cost. And then any customer that delivers revenue off that platform capability actually reduces our operating costs or contributes to profit, if you like. So they make a meaningful contribution. Again, those asset classes haven’t been protected from this environment. Crypto seems to be recovering faster than most asset classes, and so it’s definitely benefitting in the current environment. But property in South Africa is under massive pressure, especially the space in which we play – which is residential property.
SIMON BROWN: I take your point on that. In your accounts – and you’ve got almost 900 000 EasyEquities accounts – how many different products does each client have?
CHARLES SAVAGE: On average they have 1.45. So one-and-a-half accounts with us across the various platforms.
SIMON BROWN: Institutional business? I think everyone looks at Purple/EasyEquities and thinks of you as the mass market – and certainly that’s the core business. Institutionals have been ticking along, and really starting to pick up.
CHARLES SAVAGE: Yes, it’s a business we’ve been building relatively quietly over the last three years. We’ve taken the exact same retail capability that we have in EasyEquities and applied it to the institutional market through Rise. And fundamentally at the end of institutional money is just another retail customer. And so that business, that message and that platform are starting to sell exceptionally well inside that market space. And, as you know, that’s a much bigger market than traditional retail stockbroking. So it is starting to participate at almost equal levels with EasyEquities in terms of inflows. In fact, this year it was just slightly behind inflows of deposits and we expect that to be a continuing trend.
SIMON BROWN: You’re still bringing products, you’ve got EasyCredit, just come EasyProtect, EasyBonds. As I understand, many of these are still sort of in soft launch. How has response to those been, the bonds in particular because, as I understand, this is good old-fashioned South African government bonds, which I can buy if I’ve a couple of million rand lying around? And of course you’re making that simpler.
CHARLES SAVAGE: Yes, I love the EasyBonds product and the timing couldn’t be better. Maybe six months ago it would have been slightly better. But we are seeing huge investor engagement with it. It’s a new asset class for them, so it’s something they’ve got to understand. It’s not equities, but on average we’re seeing about half a million rand per day in new flow. It’s only a week old. I think we’ve raised about R3.6 million for the government so far. But I expect that to be a continuing trend and we’ve a big portion. People think about our platform as being young and the averages tell you that they’re young, but 40% of our customers are over the age of 50. And so this product in this environment is great for those facing retirement or already in retirement.
SIMON BROWN: Yes. And bonds, to your point, are giving almost equity-like returns without the risk.
In the Philippines – you did the competition there. As I understand you are struggling with the regulator to get traction, to get launched.
CHARLES SAVAGE: We probably were overly optimistic about how quickly we could launch in the market. One thing we didn’t do is underestimate the demand. We ran the game and 300 000 Filipinos, 330 000 Filipinos, pitched up and played the game. Just rewind your memory to when we launched EasyEquities. We only had 2 000 game players nine years ago. So we’ve satisfied ourselves that there is a massive market opportunity there. That’s the good news.
The bad news is the regulatory environment; they don’t know who we are. They don’t understand our platform capability. We do things very differently from the traditional stockbrokers in the market and so it’s taking much longer than we expected to satisfy them about our products and services.
I guess the bad news around that is that we have no certainty around timing. And so our choice has been let’s keep building a community, let’s keep building a relationship in the market. Let’s look to see if there are other things we can do in the market that are easier to launch and can produce revenue. And let’s make sure we stay in the market so that when the opportunity does arise to launch, we’re still there.
SIMON BROWN: Okay, so you stand there. A quick last question. You launched Thrive, your programme post year-end; it’s not in the numbers. We chatted about it at the time. Have you seen clients leaving in any significant numbers?
CHARLES SAVAGE: No, Simon, it’s been a kind of storm in a Twitter teacup, I guess. The bottom line – I think once people have lived alongside it now for a month and we’ve extended the first fee run to December 31, they’ve realised firstly how easy it is to Thrive, and secondly that it is a fair trade. We spend 365 days, 24 hours a day looking after people’s investments and improving the platform, which is demonstrably evidenced in our financial results, and all we are asking investors to do is pitch up for five minutes a month max and Thrive. It’s already delivering a positive result. Deposits were up 10% by volume in terms of number of customers in November, and that’s exactly what we were trying to encourage.
Read/ listen: Uproar as EasyEquities introduces convoluted monthly platform fee
So it’s only one month in, and I don’t want to say that it’s going to change; the behavioural mechanisms have turned everything around, but early signs are that it’s creating the behavioural outcomes that we wanted and the programme is going to deliver value to the group in the year ahead.
SIMON BROWN: Charles Savage, CEO of Purple Group, I appreciate the early morning.
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