Quilter listing a possible boon for investors
The timing of Quilter’s listing on the London and Johannesburg stock exchanges later in June could prove a boon for Old Mutual shareholders if the price of peers is any indication.
St James’s Place, Quilter’s largest listed competitor, was trading on a one-year forward price-to-earnings multiple of 23 times, said Renier de Bruyn, an investment analyst at Sanlam Private Wealth.
A price-to-earnings ratio divides a company’s share price by its earnings per share, indicating the price investors are willing to pay for each rand of a company’s earnings. The higher the multiple, the more investors are willing to pay for the stock, which could indicate that shareholders have high growth expectations for the company.
Quilter is the rebranded Old Mutual Wealth, which will be unbundled from the insurance group at the end of June as part of its multiyear managed separation process.
Quilter and Old Mutual Limited, which has absorbed Old Mutual Emerging Markets and the group’s majority stake in Nedbank, will list in London and Johannesburg on June 26.
On Monday Old Mutual said up to 9.6% of Quilter shares would be offered to institutional investors at a price range set at between 125p and 155p per ordinary share.
“Adjusting for the separation cost and disposal of Quilter’s single strategy asset manager, we estimate the indicative offer price for Quilter translates into a 15- to 18-times normalised price-to-earnings ratio,” said De Bruyn. “Although this seems reasonable, certain Old Mutual investors may have hoped for a higher price, given the high ratings on which Quilter’s peers are currently trading.”
It would be better for Old Mutual shareholders if Quilter shares were priced at the upper end of the range, as the proceeds of the sale were likely to pass to investors as a special dividend in the future, De Bruyn said.
Old Mutual plc’s shareholders will receive one ordinary share in each of Old Mutual Limited and Quilter, with the latter giving South African investors immediate exposure to the UK’s booming retail wealth market. Official figures estimated the size of this market to be in the region of £1-trillion at the end of 2016.
Pension reforms are also growing this market, driving a move to defined contribution funds and allowing retirees to draw down from their invested income rather than having to purchase an annuity. Regulatory changes were a tailwind for Quilter, said De Bruyn.