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Can Old Mutual make a comeback?

Mar 10 2016 22:49
Jaco Leuvennink

Cape Town - Can Old Mutual make a comeback as far as South Africans and investors in South African shares are concerned?

That is the question on the eve of their announcement on progress with the strategic restructuring review that was started in November last year under new CEO Bruce Hemphill. Expectations are that the group could be unbundled into three or four separate business units and that some of the businesses will be sold.

The announcement on restructuring will coincide with the disclosure of Old Mutual’s annual results for 2015 on Friday.

Old Mutual used to be one of the big favourites among South African shares, or at least it was one of the main companies whose movements on the stock exchange were followed closely by most serious investors in South African shares.

Since former chairperson Mike Levett’s ambitious international expansion started around 2000 and the primary listing (and head office) was moved to London, the interest gradually waned among the investors, with a low point at the height of the international financial crisis in 2009 when the share price hovered around R5.

It rose on the recent confirmation of restructuring plans last weekend to about R42 after a decline of around 20% over the last 12 months.

Old Mutual made some mistakes in acquiring overseas assets, mainly in North America and Scandinavia (Skandia-takeover), which the company probably paid too much for.

But the group steadily moved along and the disinterest was not really justified. As an analyst of a prominent Cape asset manager put it on Thursday: “Perhaps it’s a case of too many moving parts and that value can be unlocked by unbundling the businesses.”

The asset manager, who did not want to be named “because these days we do not have that much interest in the company", was nevertheless optimistic about Old Mutual’s restructuring plans and said that he would not now sell the company's shares.

Old Mutual, who has a share of 54% in South Africa's Nedbank, still generates the majority of his revenue in Africa (South Africa), although it seems its overseas assets like Old Mutual Wealth account for the biggest part of its total value of approximately £9bn (about R200bn).

It currently seems that Old Mutual does not really give South African investors enough international exposure and hedging against the weak rand, while international investors are scared by the big exposure to income in rand.

For South Africans the most interesting, or rather controversial part of the plans is the unbundling of Nedbank. While unlikely, the sale of Nedbank is a possibility. That will however require some regulatory clearances.  

Nedbank announced fairly good results early in March and Old Mutual’s results will probably also be reasonably good without big surprises.  

Old Mutual could save a lot of money moving its headquarters, and primary listing, from London back to South Africa. It will also appeal to the patriotic feelings of South Africans.

But it remains to be seen whether the insurance giant can regain its position of fifteen years ago among South African investors.

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