Discovery share price dips, hitting 52-week low

The market did not like Discovery’s voluntary trading statement on Monday, with the group’s share price sliding just over 7% and closing at a 52-week low. Discovery’s update for the six months ended 31 December last year flagged that its expected headline earnings per share (Heps) would come in either marginally lower or slightly higher for the interim period.

The insurer’s share price closed at R123.97, a slide that could mean shareholders’ expectations have not been met, FNB Wealth and Investments portfolio manager Wayne McCurrie said.

Discovery’s share price

“Discovery’s shares are more expensive than [those of] its peers in the market, and its headline earnings are on the light side versus the expectations built into the share price,” said McCurrie.

In the trading statement, Discovery says it expects its Heps to be between 3% lower and 2% higher. Normalised profit from operations is expected to increase between 10% and 15%, while normalised headline earnings are expected to be up by between 8% and 15%. The group’s new business annual premium is forecast at 28% higher than the previous corresponding period.

New accounting methodology

Discovery transitioned to a new accounting methodology – the IFRS (International Financial Reporting Standards) 17 Insurance Contracts accounting standard – which required a restatement of earnings for consistency.

During its full-year results announcement in June last year, the group highlighted that the transition to IFRS 17 would not materially impact its underlying economic value, solvency levels or cash flows. It does, however, affect its incidence of profit recognition. The restated normalised profit from operations under IFRS 17 for the prior period (to 31 December 2022) was 16% lower than under IFRS 4.

Discovery intends to report its interim 2024 financial results today.

McCurrie said companies only announce voluntary trading updates when the news is either “very good or very bad”.

“There was no need for Discovery to do a voluntary statement. It could be that they are trying to manage shareholders’ expectations,” he adds.