Liberty shifts focus from Nigeria to SA

● In a clear strategy shift, insurer Liberty has pulled the plug on its planned acquisition in Nigeria in order to focus on its South African operations.

This was revealed by CEO David Munro when he and chief financial officer Yuresh Maharaj presented the company’s year-end results on Friday.

Liberty, however, remains in a difficult position, with a lacklustre performance in South Africa and an African business that is not delivering.

“We’ve brought the focus back to South Africa [and] terminated the intended acquisition in Nigeria. That might sound like just a point but it’s a huge point,” he said. “It’s signalled to everyone that I’m not going to buy a thing.”

Munro said Liberty’s attempt to acquire a 75% stake in a Nigerian longterm insurer had distracted management from its core business.

Munro’s turnaround strategy includes growing the margins on new business in the range of 1% and 1.5%, to grow embedded value by at least 12%, to improve return on equity in the range of 15% to 18% and to maintain its capital. This will be undertaken in the next two years, Munro said.

Embedded value is used to estimate the consolidated value of shareholders’ stakes in an insurance company.

Despite more clarity on Liberty’s strategy being provided, its share price fell almost 4% on Friday morning.

Warwick Bam, an insurance analyst at Avior Capital Markets, said the strategy lacked detail. “They are certainly appreciating what they need to do but they were rather cautious around timelines and the size of the task at hand. I think they have a long way to go in communicating tangible evidence and very specific outcomes before investors give them the benefit of the doubt,” he said.

Liberty reported an increase in normalised earnings of 8% and revenue for the year was R94-billion. The insurer will keep its dividend steady at 691c.

Wayne McCurrie, a fund manager at Ashburton Investments, said the results presented were to be expected from Liberty. “They’ve put out, for quite a while, mediocre results.

“Where I think the disappointment came in was that they didn’t increase the dividend. As far as I can see the dividend is flat from last year despite Liberty being well capitalised.”

A company spokesperson said the dividend was in line with Liberty’s policy of maintaining dividend cover between 2 and 2.5 times its underlying core operating earnings.

But perhaps what Liberty needed to turn its ship around was a boost in consumer confidence. Liberty is heavily reliant on the affluent segment of the market, which is under increasing pressure as the Treasury imposes tax hikes in a weak economy.

However, Munro said, he was not worried about concentration in this segment of the market. “The market segment still has value. I just think we need to get better,” he said.