Discovery 'too hot to handle'
Johannesburg - Financial services firm Discovery Holdings [JSE:DST] was simply too hot for its competitors, which is the main reason why the company increased its market share over the past 12 months.
This is the view of Discovery CEO Adrian Gore, commenting on the group's annual results for the year to end-June.
"We are red hot in terms of competitiveness," said Gore, claiming Discovery has increased its market share in both the life and healthcare insurance industries on the back of its "scale and sophistication relative to its peers".
"It was a case of flight to quality," he said, explaining Discovery had won major contracts during the period under review, including from listed corporates such as Remgro and Allied Electronics Corporation, as well as from food giant Mars and credit card firm Visa in the UK.
The group's headline earnings per share were up 24% to 278.8c, while profits rose 36% to R2.5bn. A final dividend of 36 cents per share was declared.
The market responded positively to the results, with the share up 103c (2.9%) to trade at 3 660c around noon on Thursday.
Gore said the integrated nature of Discovery's business divisions was one of the group's strongest points.
He said 310 000 customers within Discovery make use of the Life, Health and Vitality products and 70% of the life policyholders make use of other Discovery products.
"If you ride the Discovery chassis, you will bring the costs down," he said.
The last financial year has given impetus to Discovery's international expansion strategy.
The company has recenly acquired Standard Life Healthcare in the UK for R1.56bn, which merged with the PruHealth joint venture. Discovery has hereby increased its interest in both PruHealth and PruProtect from 50% to 75%.
"If you look at the levels of government debt, private healthcare will continue to grow," he said.
Other major deals included its expansion into China through the Ping An Healthcare transaction, through which Discovery took a 20% stake in the Chinese business. Gore said there is a potential market of 83 million consumers looking for healthcare insurance in the country.
He also said Discovery's Vitality operation in the US was continuing to tick along satisfactorily and had recently partnered with consumer healtchare giant Johnson & Johnson to offer wellness-related products.
Little to criticise
Analysts could find little to criticise in Discovery.
UBS analyst Michael Christelis questioned Gore on the performance of the PruHealth business, arguing that its operating performance was not as rosy as Gore had said.
Gore responded Discovery had been "very conservative" in in its accounting assumptions for PruHealth.
Brian Mushonga of Credit Suisse Standard Securities asked whether Discovery Health had faced any questions from the competition regulator about the group's growing market share in SA.
Gore said the company had not had any questions from regulators, and still had only 30% of the market.
Stockbrokerage Imara SP Reid recently updated Discovery as an "add", saying the strong influx of new clients and the opportunities the Ping An transaction presented boded well for the group.