Johannesburg - JSE-listed financial services group Metropolitan will use some of its R2bn in excess capital to buy back its own shares.
That's according to group finance director Preston Speckmann, following the release of the life group's annual results to end-December 2009 on Wednesday.
"Last year the markets were too uncertain and there was no capacity for share buy-backs, but this year we will be asking shareholders at the AGM [annual general meeting] to give us permission [to buy back the shares]," Speckmann said.
He would not be drawn on how much the firm would commit to the buy-back programme, but said it would enhance the embedded value of the company, which should have a positive spin-off for investors.
Metropolitan is trading at a 20% discount to its embedded value on an attractive forward dividend yield of 7%. For the period, Metropolitan reported a 6% increase in embedded value to 1 811 cents per share and a 9% increase in dividend payments over the past financial year.
Piet Viljoen, director at asset management firm RE:CM, has cautioned clients that while buy-backs may be earnings enhancing for the company in the near term, it may not always be to the benefit of shareholders. He was not referring specifically to Metropolitan at the time.
Viljoen pointed out that directors, who are incentivised with share options as remuneration devices, may be conflicted in terms of interests if they opt to go this route before returning the capital to shareholders in the form of dividends. Typically, a buy-back is positive for the share in the short term as there are fewer shares in issue.
Asked if Metropolitan has other capital deployment strategies in place, Speckmann identified greater expansion into Africa as well as further investments in Metropolitan's healthcare business.
The Metropolitan Health Group (MHG) has seen operating profit grow by 8% over the year on the back of strong growth in the number of lives under management, which now exceed two million. Much of this has been driven by exposure to the Government Employees Medical Scheme (Gems).
"It is a very cash generative business for us," he said.
Asked if there had been any developments in terms of the National Health Insurance (NHI) structures proposed by government, Speckmann said nothing new had emerged but praised government for the way it was engaging all stakeholders.
Shares in Metropolitan were up 1.4% (20c) to 1 460c by midday on Wednesday.
- Fin24.com