Liberty slides on performance fear
• Shareholder confidence wanes as new chief fails to fire up earnings
Liberty’s share price tumbled more than 7% on Friday, as the insurer’s expected turnaround under Standard Bank appointed David Munro failed to materialise. In a brief trading update, Liberty said it expected normalised headline earnings per share for the year to December 2017 to be between 1% and 15% ahead of the previous year’s.
Liberty’s share price tumbled more than 7% on Friday, as the insurer’s expected turnaround under Standard Bank-appointed David Munro failed to materialise.
In a brief trading update, Liberty said it expected normalised headline earnings per share (heps) for the year to December 2017 to be between 1% and 15% ahead of the previous year.
But analysts said that the increase in earnings should have been much higher.
“Most analysts were expecting normalised heps to increase beyond 15% year on year given the one-off costs in [the 2016 year],” said Warwick Bam, an analyst at Avior Capital Markets.
“The concern is that there are further operating issues coming out in these results,” he said.
Liberty’s 2016 results were a shocker. Normalised headline earnings fell 39% to R2.5bn, reflecting a 37% drop in operating earnings and a 42% fall in earnings from the shareholder investment portfolio.
A challenging consumer environment, lower investment returns, accounting anomalies arising from its listed property portfolio and operational challenges in Stanlib were the drivers behind the poor results.
A strategy and management shake-up ensued, with a 10point action plan announced at Liberty’s full-year results in March, based on closer cooperation between Liberty and its majority shareholder, Standard Bank. In May 2017, then CE Thabo Dloti stepped down over disagreements with the board on what to prioritise and the speed of execution. At the time, Liberty chairman Jacko Maree said that the group was not performing at the level it should be and there was pressure from the board on executives to fix things quickly.
Standard Bank brought in Munro, a career banker who had headed the bank’s corporate and investment banking unit since 2011. Munro was a “deeply experienced manager who … can restore Liberty to its former glory”, said Maree.
But Friday’s trading update has not inspired confidence in Liberty’s turnaround. Assuming it reaches the upper end of its earnings guidance, the insurer will post normalised heps of R10.40, below the R13.28 it earned in 2012.
Liberty’s statement was thin on detail, leaving investors in the dark as to what had kept earnings growth muted. It is possible that its shareholder investment portfolio managed by Stanlib earned lower management fees on offshore assets due to the rand’s strength towards the end of 2017.
Liberty has also not diversified away from the middle- to upper-income market, which is a limited pool of customers fiercely contested among life insurers and asset managers.
This market has increasingly turned away from traditional life insurers when it comes to retirement savings, choosing instead to invest with independent asset managers.
IT IS POSSIBLE THAT ITS SHAREHOLDER INVESTMENT PORTFOLIO EARNED LOWER MANAGEMENT FEES