RMBH rejects Outsurance listing

2010-09-22 11:03

Johannesburg - A restructuring of the banking and insurance assets at JSE-listed financial services holding group RMB Holdings [JSE:RMH] (RMBH) is on the cards, but this will not include a listing for direct insurer Outsurance.
RMBH has an effective stake of 61.9% in Outsurance, and is currently trading under cautionary. It also has stakes in financial services groups FirstRand and Discovery Holdings, soon to be unbundled financial services group Momentum and insurance holding group RMBSI Investments.

"There is no need for Outsurance to be listed," said RMBH CEO Peter Cooper. "It is adequately capitalised and has shareholders with stong capital bases that could be used to finance any capital calls."

At the release of its full-year results last week, RMBH said it would be looking to split up its banking and insurance operations, as well as increasing its stake in the merged entity of Momentum and Metropolitan.

Outsurance is a big business in its own right. For the last financial year its profits from South African operations grew by 18% to R1.18bn. Taking into account costs associated with expansion into Australia and the launch of Business Outsurance, headline earnings declined by 11% to R580m.
"Tt would be a great listing if it ever did materialise," said Vega Capital analyst Francois du Plessis. "One only has to look at how well short-term insurers like Santam and the now de-listed Mutual & Federal have done for shareholders."

Both Santam and Mutual & Federal have good track records of generous special dividends to shareholders. This tends to be a feature of well-managed short-term insurers who enjoy healthy cash flows.
One criticism against investment vehicles like RMBH is that if management is not proactive about realising value, it can quickly become a "value-trap" which consistently trades at a discount to the sum value of underlying investments.
RMBH employs two full-time staff, with Cooper doubling as CEO and group financial director. The group generates annual profits of R3.6bn and has a cash pile of R2.7bn.
Breaking up its banking and insurance operations into two separate listed entities will give investors a more transparent valuation of the underlying assets. However, depending on the ultimate structure of the entities, investors will need to be wary that they are not footing the bill for two sets of boards of directors and the costs of being listed.
Stockbrokerage Barnard Jacobs Mellet has told clients that RMBH remains a "viable alternative to FirstRand" in its core equity portfolio.