New ven­tures, lo­cally and abroad, look good

Financial Mail - Investors Monthly - - Analysis - Paul Baise

Dis­cov­ery op­er­ates in SA in health in­sur­ance (Dis­cov­ery), life in­sur­ance (Dis­cov­ery Life), well­ness (Dis­cov­ery Vi­tal­ity) and fi­nan­cial ser­vices (Dis­cov­ery In­vest and Dis­cov­ery Bank). It has op­er­a­tions in the UK, US, China, Sin­ga­pore, the Philip­pines, Aus­tralia, Hong Kong, Thai­land and Malaysia. In Canada and Ger­many as well as France, a sim­i­lar suc­cess­ful pat­tern has emerged.

The De­cem­ber 2017 in­terim re­sults showed nor­malised profit from op­er­a­tions up 19%, core new busi­ness an­nu­alised pre­mium in­come (API) up 16% and em­bed­ded value up 13%.

Dis­cov­ery Health earn­ings in­creased 12%, with ini­tia­tives for spe­cial­ist med­i­cal care in­sur­ance in the off­ing. Fur­ther in­vest­ments in tech­nol­ogy seek to pre­clude fraud­u­lent claims and im­prove risk man­age­ment. In­no­va­tive changes to es­tab- lished prod­ucts are to be launched this year. Be­ing awarded a con­tract to ad­min­is­ter the BP Med­i­cal Aid So­ci­ety, as of July 1 2018, will also be earn­ings-ac­cre­tive.

For Dis­cov­ery Life and Dis­cov­ery Vi­tal­ity, ow­ing to in­creased claims, earn­ings in­creased by 4% and value of new busi­ness grew by 11%. The launch of the new Global Ed­u­ca­tion Pro­tec­tor, Vi­tal­ity Pur­ple and the Pur­ple Plan range al­ready has an­nual pre­mi­ums col­lected ex­ceed­ing R10bn.

Dis­cov­ery In­vest’s new busi­ness fell by 5%, due to lower in­flows. Net flows grew by 20% to R3.3bn and op­er­at­ing profit by 29% to R419m, driven by 22% growth in as­sets un­der ad­min­is­tra­tion and new in­vest­ment of­fer­ings tai­lored to spe­cific clients.

Dis­cov­ery Card’s prof­its grew 16% and rev­enue rose 7%. The credit loss ra­tio to

ad­vances was 1.5% against the av­er­age of 6% for tier 1 credit providers.

Dis­cov­ery Bank re­ceived its bank­ing li­cence on Oc­to­ber 16 2017, sub­ject to cer­tain con­di­tions. The in­cor­po­ra­tion of the Dis­cov­ery Card busi­ness (coowned with FirstRand) is sub­ject to com­pe­ti­tion com­mis­sion ap­proval. Ne­go­ti­a­tions are un­der way with the au­thor­i­ties on how to ac­com­plish this and es­tab­lish the bank.

Vi­tal­ity UK had new busi­ness sales up 6% and op­er­at­ing profit up 55%. En­hance­ments to the Vi­tal­ity brand, cou­pled with reg­u­la­tory ap­proval for the launch of a long-term sav­ings busi­ness dur­ing 2018, will lever­age UK con­sumer be­hav­iour, as well as the ex­pe­ri­ence of Dis­cov­ery In­vest.

Gen­er­ali had strong sales in Ger­many, France and Aus­tria, with to­tal mem­ber­ship up 45%. There are great ex­pec­ta­tions for growth from the launch of Vi­tal­ity to the 6m clients of Deutsche Ver­mö­gens­ber­atung net­work in Ger­many.

In China, Ping An Health mem­ber­ship grew by 60% over the six months from July 1 2017, with op­er­at­ing profit of R36m. This trend is seen as con­tin­u­ing. Other ini­tia­tives in­clude part­ner­ships with in­sur­ers in Europe, Asia and Latin Amer­ica, via Vi­tal­ity Group’s part­ner­ship with Han­nover Re.

The main growth is seen as aris­ing from the new over­seas ven­tures. In ad­di­tion, growth is seen as com­ing from Dis­cov­ery Bank and Dis­cov­ery In­vest.

The com­pany is trad­ing at an 84% pre­mium to its em­bed­ded value of 9,366c/share (pre­vi­ously 8,265c), which makes the share quite ex­pen­sive. This flows from con­tin­ued good earn­ings growth and im­plies strong growth is ex­pected from the group’s new ven­tures.

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