Liberty Holdings: Ending years of confinement
After the effects of the global f i nancial crisis, Liberty Holdings Limited (Liberty) reported a sharp drop of about 90% in headline earnings between 2008 and 2009, blaming it on poor equity hedging decisions and Stanlib, its asset management business, suffering from a host of troubles at the time. Not forgetting that people were forced to scale back on a few necessities, causing the group to suffer a high level of payment lapses, with most pol i c yholders a g g r e s s i v e l y surrendering their policies to make ends meet.
Nevertheless, Liberty withstood the bump, worked hard to sort out its troubles and has now embarked on an aggressive sales approach.
Liberty is South Africa’s fourthlargest insurer by market value and is a holding company of various operating subsidiaries engaged in the provision of f inancial services including long-term and short-term insurance, investment, asset management and health services.
It operates in three business units: Retail SA; LibFin and Institutional and Asset Management, which houses Stanlib and Liberty Corporate; and the f inal unit is Liberty Properties. The latter oversees Liberty Africa, Liberty Health and direct life insurer Frank.net. Its presence outside of SA extends to 14 countries in East, West and Southern Africa. As of 5 August 2014, Liberty acquired the remaining 25.1% stake in Liberty Health Holdings Limited.
Last week, Liberty reported a 3% drop in annual earnings, a piece of news that was received rather oddly by investors, as the share price spiked up – triggering a breakout out of a long-term consolidation pattern, dated back to December 2012. According to the group, the earnings by LibFin Investments fell by 26%, and the asset management division, Stanlib, continued to suffer from the negative sentiment caused by the failure of African Bank, which saw net withdrawals of R13.7m from various money-market funds. However, their total dividend increased to 634c/ share from 58c in the previous year. The fact is that confidence in financial services has been somewhat sluggish. The level of competition in the local life insurance industry is also high, particularly at the upper end of the market where Liberty’s traditional base lies and Discovery has become a disruptive inf luence. Nevertheless, Liberty is constantly reviewing its current situation, in an attempt to recover market share – by offering more creative products launched under a life licence rather than under a unit trust licence.
The group is also expanding into the rest of Africa, with a strategy of offering different products from what its norm, like the real estate investment trust launched for Kenya. Liberty is also hoping to acquire an insurer and an asset manager in Nigeria in the near future. But the question is, should one trust the breakout on the monthly chart and buy or acquire more Liberty shares?
Liberty has traded through the upper slope of a symmetrical triangle, and a breakout from long-term confinement tends to be aggressive. But the monthly relative strength index (RSI) will become our leading indicator. If the RSI escapes its bear trend, by trading above its resistance trendline next month, gains to the17 620c/share will most likely be possible in the short term (one to six months).
If the RSI retracts and prolongs its bear trend, a false break through the upper slope of the triangle would be confirmed.