End of long-term consolidation could be in sight
South Africa’s biggest health insurer recently released its results for the six months to end December, reporting a 14% increase in headline earnings to R2.02bn, while new business grew by 15% to R8.25bn. In the period, R244m was invested in new initiatives, which include its plans to start a bank in SA, Discovery Insure, the Global Vitality Network and an investment venture in the UK.
Discovery said its emerging businesses – Discovery Insure, Ping An Health (its operation in China), and the Vitality Group – delivered growth of 43% in new business to nearly R1.8bn. “These emerging businesses are now substantial, with Discovery Insure covering more than 160 000 vehicles. Ping An Health is the leading health insurer in China and new business has grown by 55% over the period; and Vitality Group is a growing global franchise that is active in 12 markets,” it said.
Vitality now has more than 1m members actively using the benefits in SA, the UK, US, Hong Kong and China. “The exciting result is an improvement in physical activity of over 25%, shown to have significant benefits in hindering the onset of disease and improving claims experience,” Discovery CEO Adrian Gore said.
After plummeting in November 2015 from a high at 15 580c/share to a low at 10 785c/ share, Discovery has been consolidating, with key support retained at 10 785c/share. Currently recovering and testing a major trendline, further gains could end the long-term consolidation and trigger a new bull phase. How to trade it: Though Discovery has gained upside, it’s important that it escapes its current long-term consolidation, signalled above 13 200c/share. A move above 13 200c/share could see Discovery complete a 100% retracement to 15 580c/share. Above that level, the target at 16 315c/ share should be tested. A neutral long could be initiated above 13 200c/share, with incremental increases above 14 430c/share. Maintain a tight trailing stop-loss at first. Failure to recover above 13 200c/share would extend the consolidation, in which case hold – the volatility will be frustrating.