Liberty profits astound experts

Johannesburg - Analysts are at a loss to explain the turnaround in fortunes at Liberty Holdings, after the insurance giant announced its return to profitability.

Posting a trading statement on Wednesday, Liberty said it expects basic and headline earnings for the year to end-December to be between 14.8c and 17.9c per ordinary share. This implies a dramatic performance reversal in the group's second half of 2009, since it posted a basic loss of 483.3c per share for the six months to end-June 2009.

"There are not many in the market that expected positive results," said Patrice Rassou, a senior portfolio manager at Sanlam. "Everyone has been taken by surprise."

Liberty's management blamed its R1.2bn loss in the interim period of 2009 on the strong rand, a woeful hedging position and inaccurate assumptions about policy lapses.

According to Rassou, no one knows what is driving the group's profitability at this point and low market expectations mean that any profit, irrespective of size, will come as a surprise.

However, Khaya Gobodo, head of equities at Afena Capital, said Liberty's return to profit is not really that unexpected.

"The losses made last year were a function of very specific factors that won't happen again," he said.

"Their long-term fortunes will be a function of doing important work related to turning around client retention," said Gobodo, adding policy lapses are a key feature of Liberty's financial well-being, and that the market will keep a close watch on whether the group can manage this better.

"I hope they will be more realistic in the remodelling of their [rate of lapses] expectations," Rassou concurred.

Liberty intends to release its results on February 25.

- Fin24.com