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Johannesburg - Sanlam's [JSE:SLM] trading update for the first four months of 2010 did not raise too many eyebrows at an operational level, but analysts did have questions about its dividend policy, disclosure and provisioning for R2bn in claims against the insurer.
CEO Johan van Zyl was cautious in his outlook for the group, despite announcing an 8% improvement in core earnings per share on a year-on-year basis.
He pointed out that the debt crisis in Europe and volatile equity markets would likely impact the group when it reported interim results later in the year.
Equity markets have been nervous in recent weeks following growing debt issues in Greece, Hungary and other parts of Europe.
Van Zyl concluded: "Despite recent upbeat data releases on the global real economy, an important conclusion from the European difficulties is that the balance of risks for the global (and South African) economy is tilted to the downside for the foreseeable future.
“The challenging and volatile financial and economic environments are therefore expected to continue for the remainder of the year and into 2011, and are likely to impact on growth in the group’s key operational performance indicators."
Disclosure and dividend
Michael Christelis from banking group UBS raised concerns about the group’s unwillingness to disclose information about new business.
"I'm concerned that your lack of disclosure [around some numbers] has led to the likes of Liberty not giving us numbers.
"The norm internationally is quarterly sales with full details," Christelis said.
Group financial director Kobus Möller argued that Sanlam could not be blamed for the information other insurers chose to release to the analyst community. However, Van Zyl said: "We will discuss it [increased disclosure] with the board."
Risto Ketola from Ketola Research in Europe also challenged Van Zyl on the excess cash that had been sitting on the Sanlam balance sheet for the last few years, indicating that it could perhaps be more effectively returned to shareholders by changing the dividend policy.
"I think that model is flawed," Ketola said.
Van Zyl countered that in the years of good investment returns there may be some excess capital on the balance sheet, but in a normal operating environment this should not be the case.
R2bn in claims
Commenting on reports that Sanlam faces R2bn in legal claims, Van Zyl downplayed the significance of the issue, pointing out that the claims originated in the 1990s and had been disclosed in the annual report.
"We are progressing them as quickly as we can," he said.
Business Report reported that Sanlam was facing claims of close to R2bn for grabbing at various surpluses, including its own staff retirement fund.
Ketola queried whether anything could be read into the increasing amounts set aside by Sanlam against these.
Van Zyl denied this, but said: "You are also liable if you do administration and something in the pipeline goes haywire. These claims emanate from 15 years ago and with compound interest these things grow quickly."
An area where analysts did focus on was whether Sanlam would continue to be a buyer of its own shares through a buy-back initiative, and at what level it would be buyers.
"We have said in the past that we will not go above GEV [group equity value number]; we prefer to buy back when there is a substantial discount," Van Zyl said.
"We still see value," he said. Sanlam's last reported GEV figure for the full year was 2 473c per share.
Shares in Sanlam leapt 3.2% to finish at 2 270c on Wednesday
- Fin24.com
