Old Mutual rally 'not over'

Johannesburg - Investors who ponder selling their stakes in dual-listed insurance group Old Mutual [JSE:OML] on the back of a strong price rally may be well advised to hang on to their shares for now.

That's according to Sanlam Investment Management (SIM), a big buyer of the counter when Old Mutual traded at about 500c per share in March 2009.

"The share is trading at a significant discount to its valuation, which in our opinion reflects excessive perceived risk," said SIM portfolio manager Eduardo d'Almeida.

Over the last three years the share has taken a pasting, with shareholders watching their investment plummet from a high of 2 300c to a low of 461c in March 2009, and having dividends cut. However, the share has since bounced back to above 1 200c, prompting some investors to consider selling out.

D'Almeida pointed out that CEO Julian Roberts, who took the helm in late 2008, had already made some positive changes by simplifying the group and reducing risk - particularly in its capital-sapping US Life operations. Other steps taken by Old Mutual include the takeout of minorities in short-term insurer Mutual & Federal (M&F), which is now in the process of de-listing.

Dividend could be on cards

"The new CEO has already made some tough decisions in his brief tenure. It is also clear that he grasps the need to simplify the group and focus on businesses that generate proper returns - so we would expect more announcements along these lines," said D'Almeida.

SIM is also upbeat about the prospects of Old Mutual resuming dividend payments now that operating conditions have eased.

Old Mutual's performance is largely tied to that of investment markets. This is the key risk D'Almeida has identified, saying the performance of equity markets as well as US debt markets would be the only real areas of concern for the group.

The M&F buyout has however drawn some criticism from RE:CM portfolio manager Rodger Walters, a previous holder of shares in the short-term insurer.

"From an ethical as well as corporate governance standpoint, we think Old Mutual would have enhanced its reputation by taking all shareholders along on the journey of improving what should be a really good business, if it gets the necessary care and attention that Old Mutual now finally seems set to give it," Walters wrote in a note to clients.

According to I-Net consensus forecasts, the market is bullish on Old Mutual with analysts rating the share as a "buy". Fellow insurers Liberty Holdings, Discovery and Sanlam are rated as "holds".

By midday on Wednesday shares in Old Mutual were up by 1% (13c) to 1 273c per share.

- Fin24.com