Publications
Partners
"First impressions are that the results are a little worse than expected, but the business model appears sound," said Simon Fillmore, an analyst at Independent Securities.
Santam CEO Ian Kirk has described the period as challenging. The company's South African operations achieved an 8% increase in gross written premium, but the net underwriting result for the continuing operations declined during the first half of the year, from R469m to R326m.
Knew what to expect
Santam had already prepared the market with a trading statement in early August where it indicated that headline earnings were going to be between 85% - 90% lower than the corresponding period from the previous year. As a result, the market was not surprised by the results.
For a company that averages nearly R8.6m in trades per day, Santam saw little more than a blip on the trading screen with only R100 000 in trades going through.
Fillmore believes that the fact that management held its dividend policy is a sign of a solid underlying business. "Over the last 11 years, management has kept its dividend policy, despite going through some torrid times. This indicates a sound business model," he said.
Negatively affected
Like many of its peers, Santam has been negatively affected by weak equity markets and a tough operating environment.
The company also took the decision to move some of its float (funds generated by insurance activities), out of low-risk interest-bearing investments and move them into equity investments.
This, coupled with a heavy exposure to financial and industrial shares which had performed poorly up until the end of June 2008, hurt the company's performance.
The company has since reduced this exposure of its float to the equity markets but the financial services and industrial sectors remain around the same level as they were at the end of June 2008.
Offshore operations
The market will have noted Santam's progress in exiting its European operations. These activities did result in some once off costs being incurred.
Santam's offshore business units had been a worry. Last year they had negatively impacted the company with a R168m after tax loss and Santam has been in the process of exiting these businesses.
Analysts believe that once the equity cycle turns and with Santam having a very lean capital structure minus the offshore operations, the company will be able to generate some healthy returns for shareholders.
- Fin24.com
