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Johannesburg - Old Mutual [JSE:OML] will be worse off if the deal to sell Nedbank goes ahead.
At the moment this cumbersome group cannot do otherwise than to sell Nedbank Group [JSE:NED].
If it succeeded in selling Nedbank to HSBC (or anyone else), this would certainly hold benefits for the group.
But in the long term it could retard growth, said Kokkie Kooyman, head of SIM Global at Sanlam Asset Management.
He acknowledged that Old Mutual’s share price, even after the past week’s rises to R14.42, was cheap, but said the group was offering nothing exciting in the long run.
Dr Adrian Saville, head of investments at Cannon Asset Management, said Old Mutual would be worse off without Nedbank, but the value of the other investments would become clearer. He said Old Mutual’s share price could grow 25%, even if no growth were anticipated.
Saville said that the way Old Mutual currently looked, taking into account its 53% stake in Nedbank, the market value of its other operations were together worth more than the market value of the group itself.
Valuations
Last week Old Mutual’s market value was R80bn.
This included a R35bn valuation for Nedbank and R10bn for Old Mutual’s 100% stake in Mutual & Federal. This put a valuation of only R35bn on all the other group assets.
Some R35bn represents only its portfolio management operations in the US (R10bn) and its South African operations (R25bn).
To these should be added the value of the European operations in Skandia and a number of other smaller divisions, as well as the value of the life business in America.
In his calculations Saville valued the American life business at zero.
But Old Mutual is now to receive R2bn-odd for it.
Fair value for Old Mutual’s shares is R17.50 or, put differently, a price/embedded value multiple of 90% and not the current 65%.
Saville said that if everything in Nedbank were sold together, Old Mutual would be able to pay off its debt and make the group attractive. It would also be rid of the bancassurance model, which had so far failed to work anywhere else.
It would put Old Mutual in a position to focus on what it did really well: managing assets off the balance sheet.
Old Mutual had itself proved that it was no great shakes at managing a bank, reckoned Saville.
- Sake24.com
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