Liberty: where’s the rudder, the responsibility?

Analysts tear into insurance giant as its dismal trading update is soundly punished by market

LACK of accountability and the absence of a clear strategy have left the market wondering where, exactly, Liberty’s management is steering the 60-yearold company.

This, together with a tough economic backdrop, may have been what brewed the “perfect economic storm” Liberty finds itself in.

At the end of last week, Liberty released a trading update warning of a fall in earnings of as much as 60%. It sent the share price tanking, dragging financial services with it.

The Thabo Dloti-led company now trades almost 40% off its April 2015 peak.

While Liberty’s performance is a function of a tough economic landscape, “a lack of clear management strategy has had some impact on the business”, said Jordan Weir, a trader at BayHill Capital.

Over the past 10 years Liberty has lagged behind its peers. Of the biggest six insurance and asset management firms listed on the JSE, Liberty is the only one whose shares have taken a downward turn over the past decade, declining more than 50%.

Discovery has gained almost fourfold, Sanlam has seen its valuation more than triple. On the lower end of the scale, MMI’s stock has gained 50.70%.

Old Mutual, whose London and European adventures haven’t proved as successful as shareholders would have hoped, has seen its stock gain over 78%.

Underlying Liberty’s woes were internal issues that, with each attempt at clarification, left PAST: Bruce Hemphill, former CEO of Liberty Life investors more confused, said Karin Richards, an independent trader.

“With every set of results there are new and more convoluted excuses for the underperformance. These just seem to be accepted and tolerated.”

Fingers have been pointed at past management — which Richards said was not as competent as many were led to beof lieve — but current management had, she said, been lacking in terms of effectively communicating the company’s direction.

The company, which was founded by business doyen Donald Gordon in 1957, has been led by Dloti who took over in November 2013. His predecessor was Bruce Hemphill, now Old Mutual CEO, who led the group from 2006.

Weir also highlighted the lack PRESENT: Thabo current CEO Dloti, the effective and clear communication as problematic.

“There is definitely an undercurrent of concern which should be focused on management, which should have contingent business plans in times of economic stress.”

Another element that may be weighing on Liberty is the lack of innovation, and it has been slow to implement any of the innovative measures it has talked up at presentations.

“There’s been much talk of innovation in the company from top management but little action has been taken,” said Weir.

He added that Liberty needed to catch up because consumer needs were changing rapidly.

“Liberty, instead of being their slow and steady selves, needs to become more progressive, more tuned in to the modern client.

“This is only one facet to the entire life insurance model, but it’s maybe something that Liberty needs to start exploring,” he said.

What would it take to turn Liberty around?

Well, perhaps most urgent would be communicating a ADRIFT: After years of getting away with it, Liberty is facing the perfect economic storm, say analysts clearer strategic plan to the market.

Richards said the company needed to build a culture of accountability — and that parent company Standard Bank should be the one to drive this.

Standard Bank owns 53.62% of Liberty.

“I think the issue here is simply lack of accountability” said Richards.

Leveraging off Standard Bank’s client base would also work in Liberty’s favour, said Richards.

She said Liberty needed to capitalise meaningfully on the bank’s huge client base.

“This should be an enormous advantage, which clearly has produced very little in terms of a competitive edge.”

Richards said it was unlikely that Liberty’s poor performance would have any impact on Standard Bank.

However, she said, Standard Bank could derive a lot of value from the company, but it must “put [its] foot down and demand better from what could be a wonderful and reliable source of consistent earnings”.

Weir said investor sentiment towards Liberty had been clearly shown in the share price following the disappointing trading statement.

Depressing its annual earnings was the effect of rand strength on shareholders’ investment portfolios and reduced earnings from operational write-offs in Stanlib’s South African and East African asset-management businesses.

Last year, the rand strengthened more than 11% against the dollar.

In line with competitors, the company also cited abnormally high risk claims, which affected its risk profits. Old Mutual, Discovery and Sanlam highlighted an uptick in claims relating to short-term disability in their last results presentations.

This is a trend that analysts and insurers expected to continue as economic pressure remains on consumers, and companies engage in cost-cutting measures.

Liberty also stated that the company’s Individual Arrangements business was affected by negative actuarial assumptions related to worsening persistency.

Weir said the higher cancellation of policies raised the question of “marketing and sales methods and standards used by Liberty”.

The company releases its annual results on February 24.

With every set of results there are more convoluted excuses

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