Shap­ing up well for the fu­ture The Old Mu­tual split into four stand-alone busi­nesses has been wel­comed. Fur­ther, the share cur­rently trades at a price-to-earn­ings ra­tio of 14 times and of­fers a div­i­dend yield of 4.2%, pre­sent­ing an at­trac­tive buy.

Finweek English Edition - - MARKETPLACE - Ed­i­to­rial@fin­week.co.za

oldMu­tual is an in­ter­na­tional in­vest­ment, sav­ings, in­surance and bank­ing group with more than 18.9m cus­tomers in Africa, the Amer­i­cas, Asia and Europe. Founded in 1845 by Scots­man John Fair­bairn in Cape Town, Old Mu­tual was ini­tially known as Mu­tual Life As­sur­ance Com­pany. In 1999, it moved its pri­mary list­ing to Lon­don, while re­tain­ing a se­condary list­ing on the JSE.

The group has per­formed well over the past years, reach­ing an all-time high at 4 715c/share in 2015, up from its 2008 low of 460c/share. The stock has re­turned 6.6% to in­vestors since the start of the year.

In­vestors have wel­comed Old Mu­tual’s plan to split into four stand-alone busi­nesses: Old Mu­tual Emerg­ing Mar­kets, which fo­cuses on sav­ings, in­vest­ments and in­surance; Old Mu­tual Wealth, a wealth man­ager based in the UK; its bank­ing arm, Ned­bank; and Old Mu­tual As­set Man­age­ment (OMAM), based in the US.

The aim of the split, which is ex­pected to be com­pleted by the end of 2018, is to give the sep­a­rate busi­nesses eas­ier ac­cess to cap­i­tal mar­kets for their fund­ing needs, sim­plify their reg­u­la­tory obli­ga­tions, make it eas­ier for the mar­ket to value the sep­a­rate op­er­a­tions ap­pro­pri­ately, and to save costs.

Old Mu­tual gen­er­ates the bulk of its profit in South Africa, yet re­ports its earn­ings in pounds. The near-halv­ing of the rand against the pound over the past five years has weighed on its fi­nan­cial per­for­mance, as well as the strength of its bal­ance sheet. By sep­a­rat­ing its US and UK busi­nesses into sep­a­rate di­vi­sions, Old Mu­tual’s fi­nan­cials could there­fore look more en­tic­ing. De­spite the pro­posed re­struc­tur­ing, Old Mu­tual has con­tin­ued to fo­cus on grow­ing the sep­a­rate busi­nesses.

Its Old Mu­tual Wealth Pri­vate Client Ad­vi­sors busi­ness an­nounced the ac­qui­si­tion of the UK-based fi­nan­cial plan­ning firm DQS Fi­nan­cial Man­age­ment ear­lier this month, adding 650 clients and £200m to as­sets un­der ad­vice. It also an­nounced the pur­chase of 60% of US-based in­vest­ment firm Land­mark Part­ners by its OMAM unit, for about $240m in cash. An ad­di­tional pay­ment may be due based on the growth of the busi­ness by 2018. As part of the trans­ac­tion, OMAM will set­tle li­a­bil­i­ties to the Old Mu­tual Group sooner than ex­pected, thereby has­ten­ing its split from the group. The Land­mark deal is ex­pected to be con­cluded by the end of Septem­ber.

In the six months to end De­cem­ber 2015, Old Mu­tual re­ported ad­justed op­er­at­ing profit be­fore tax of £1.8bn, an in­crease of 5% in re­ported cur­rency (it was up 11% in con­stant cur­rency), while funds un­der man­age­ment in­creased 8% to £304bn. Ned­bank was the largest con­trib­u­tor to the group’s earn­ings, con­tribut­ing 41% to ad­justed op­er­at­ing profit. This was fol­lowed by Old Mu­tual Emerg­ing Mar­kets, which con­trib­uted nearly 34%.

Old Mu­tual is cur­rently trad­ing on a price-to-earn­ings (P/E) ra­tio of 14 times and of­fers a div­i­dend yield of 4.2%, ac­cord­ing to INET BFA data. This makes the share an at­trac­tive buy.

What next?

Pos­si­ble sce­nario: Old Mu­tual has been range-bound in the form of a sym­met­ri­cal tri­an­gle for the past seven months. Re­cently bounc­ing on the lower slope, gains to the up­per slope seem pos­si­ble. But in or­der to es­cape cur­rent con­sol­i­da­tion, Old Mu­tual would have to trade above 4 375c/share. The up­side tar­get of such a break­out would be at 5 630c/share. Al­ter­na­tive sce­nario: A neg­a­tive break­out, con­firmed be­low 3 600c/share, could trig­ger a sell-off to 2 345c/share, if the red trend­line should also give in.

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