Returning Old Mutual will find Sanlam ahead

Sanlam’s quiet transformation from an Afrikaans middle-market insurance company to a multinational conglomerate with offices across Africa and in India and Malaysia proves that even financial services companies can change their stripes.

Granted, it has taken 100 years: the insurance group this year celebrates its 100th anniversary in SA as Sanlam. Still, its English counterpart, Old Mutual, which reported results on Thursday, has enjoyed far less success from its crosscountry exploits.

Having trimmed down its international operations considerably over the past decade, Old Mutual is now returning home, ditching its London head office and dropping “plc” as it dual lists on the JSE and London Stock Exchange as Old Mutual Limited. It will have its work cut out to catch up with its blue rival. Since its demutualisation and listing in 1999, Old Mutual’s shareholders who reinvested dividends would have gained 553%, versus the 2,822% total return that Sanlam shareholders gained.

Sanlam’s Africa footprint, which now spans 33 African countries after it bought all of Morocco’s Saham Finances, will no doubt make Old Mutual green with envy. While Old Mutual’s rest of Africa operations contributed about 3% to operating profit in 2017, Sanlam’s rest of Africa business made a 13% contribution.

Of course, SA remains the bread and butter of both groups, at least for now. Old Mutual is undoubtedly betting that its renewed focus on the country will yield the same fruit it has produced for Sanlam.

EOH, once the market darling of the IT sector, has been knocked off its pedestal by a steady stream of grim news surrounding the technology group.

First, there were the allegations of procurement irregularities against recently acquired subsidiaries. Then, directors of the group were forced to sell shares when they faced margin calls, leading to a sharp drop in the company’s value.

Just when it seemed the ship was back on course, founder and former CEO Asher Bohbot was appointed nonexecutive chairman — a welcome appointment in some ways but one that could raise governance concern — and the company said interim earnings would move meaningfully backwards.

The company also announced a restructuring and empowerment deal, though details remain scant.

With the share price having pulled back some 60% since the start of 2017, EOH is not in the privileged position it once was. Much of its past growth was fuelled by acquisitions that were funded by shares.

It said in its restructuring update this week that acquisitions will remain a part of the strategy, although it is clear that it will have to rethink its funding mechanisms. On the plus side, EOH and its peers should benefit from rising business confidence. Companies and public sector organisations have held off on their IT spending for some time, but doing so indefinitely is simply not feasible.

Further, EOH is responding (though belatedly so) to the tough trading environment in the public sector by reducing its cost base.

That bodes well for a better second half.

But it has a long way to go before confidence in the group is restored. As a case in point, one asset manager told Business Day that EOH remained “uninvestable for us”.