Challenges on all fronts
Since the company listed out of a complex preference share structure just over two years ago, it has been a rough ride for Alexander Forbes shareholders. The share price has lost some 20%, although a decent dividend yield of around 5% has helped ease the pain.
The company focuses on employee benefits and investment solutions for institutional clients. The employee benefit space is typically very sticky as it is not a simple process for a company to move all its staff to a new provider.
But recent results were very modest with headline earnings per share (HEPS) growth of only 3%. One gets the sense that apart from the challenges Alexander Forbes already faces, its other worry is newly listed Sygnia, which operates in the same space. With its much cheaper offering, Sygnia would be gobbling up some of the market share. For Alexander Forbes to compete on reduced pricing is not a simple process as it has legacy systems, whereas Sygnia started life with low costs at the core of its DNA.
Alexander Forbes is finding it very tough to operate in the new lower cost index tracking world and I would exit any position.
The share price has lost some 20%, although a decent dividend yield of around 5% has helped ease the pain.