Johannesburg - A diversified business model has been credited with carrying financial services group Sanlam through tough times.
"A strategy of diversification has served us well," said Sanlam CE Johan Van Zyl at the company's results presentation for the six months to end-June 2008.
He pointed to a diverse portfolio comprising insurance business Santam, a quality life insurance business and a variety of investment businesses both locally and abroad.
Van Zyl said the defensive qualities of the life business "are shining through". He went on to say: "These businesses are resilient and people come back to safe havens in difficult times."
Earnings from life operations were up 10.9% to R1.5bn across the group.
Sanlam has continued to spread its footprint with a number of niche market investments in South Africa, the UK, India and Australia.
South African investments include the launch of an agricultural private equity fund and direct insurer MiWay.
Buybacks, acquisitions
Van Zyl reiterated that there may be a handful of small potential acquisitions for the business, but share buybacks were still viewed as a good way to provide a return on investment.
"The business is trading at a huge discount," he said.
The company believes that the buyback will generate an approximate 16% return for shareholders over the financial year. This would be comparable or exceed the performance from a number of potential small acquisitions.
As previously reported on Fin24.com, Sanlam has been an active buyer of its own shares.
A company typically buys back its own shares to reduce the number of shares in issue, which in turn boosts the share price.
In the previous six month period Sanlam spent a total of R1.6bn to buy back 81.2 million Sanlam shares.
Sanlam has been unable to purchase shares during the closed period prior to reporting its financial results. However this restriction has now been lifted.
Analysts have indicated this will provide an "underpin" to the company share price.
Santam
A great deal of emphasis was placed on the Santam short-term insurance business which currently contributes about 11% in earnings to the Sanlam.
Sanlam is a majority shareholder in Santam.
Sanlam emphasised the number of synergies that could be generated fromthe Sanlam/Santam relationship, including access to a number of innovative retail channels and sharing of technology relationships.
According to Sanlam, the biggest negative contributor to the investment return was a 24% decrease in the Santam share price during the six months ended 30 June 2008. At this point, Santam closed at R78.71.
At mid-day on Thursday, Santam was trading at 7 900c.
While Sanlam financial director, Kobus Moller said that there were "integration opportunities with Santam", van Zyl said that there were currently no plans to buy out minorities.
Risk
Sanlam management continues to see risk in the global credit market and has made a decision to reduce its exposure to the retail credit market.
Van Zyl said: "We see a continuation of the credit crisis and not planning to extend this are of our business."
Other areas of risk that Sanlam were concerned about, was the introduction of new legislation and the ability to retain key staff.
Sanlam shares were trading up 0.6% to 1 768c at 12:30 on Thursday. This is broadly in line with the financial index.
- Fin24.com