Sanlam, Santam 'too pricey'

2010-02-12 14:08

Johannesburg - Market commentators seem to think investors should stay away from financial services group Sanlam [JSE:SLM] and its listed insurance subsidiary Santam [JSE:SNT] at present, even though both companies have posted positive trading statements.

On Thursday, Sanlam alerted the market it expected its headline earnings to rise by between 60% and 70% when it reports full-year financial results on March 5.

The trading update came hot on the heels of a similar one from short-term insurance subsidiary Santam, which reported its headline earnings for the year will likely be 45% to 60% higher.

Sanlam attributed the rebound to positive equity market conditions, it said: "The 29% increase in the JSE All-share index during 2009 had a positive impact on the level of investment return achieved for the year."

In 2009, Sanlam reported 93.9c per share in headline earnings. The share is trading on a historical price to earnings (PE) multiple of around 18 times. Even if earnings come in at the top end of the trading statement's guidance, the share will be trading on a PE of around 14 times.

In comparison, industry counterpart Discovery trades on a historic PE of 13.5 times earnings. Discovery has also alerted the market it expects earnings to climb by 45% to 55% when it reports in March.

Stockbrokerage Barnard Jacobs Mellet advised clients that Santam's share price was "expensive" (at PE of 12.7 times earnings) and Sanlam was "fully priced" at present levels.

Nilan Morar, head of trading at Global Trader, said he is wary of insurers at the moment due to their exposure to equity markets. Equity markets have come under pressure as concerns mount that debt problems in countries like Greece would spill over into global capital markets.

Morar also pointed out that high unemployment levels would continue to be a concern for insurance clients.

Despite a slight improvement in unemployment figures for the last quarter, the quality of jobs remains uncertain.

Kgotso Radira of the Investec group economics unit said: "While the economy created jobs in the fourth quarter of 2009, these are mainly of poor quality and unsustainable - and most were occupied by the unskilled.

"We do not think the labour market has turned convincingly and [feel] there will be job losses in first quarter of 2010, although there are signs of stabilisation."

I-Net analyst consensus forecast is that Sanlam is regarded as a "hold".

Shares in Sanlam rose by 1.6% (36c) to 2 311c, with Santam trading up 0.55% at R101.06.