AfroCentric stake hits Sanlam

Sanlam’s investment in AfroCentric Investment Corporation has cost the investment holding company dearly — it posted a 4.86% decline in headline earnings for the interim period to end-December.

The insurer’s R703m subscription for 28.7% of ACT Healthcare Assets, AfroCentric’s wholly owned subsidiary that, in turn, holds the group’s operating assets such as the Medscheme health administrator, had strings attached including a requirement that AfroCentric achieve a certain level of profits for the year to June 2017.

If AfroCentric failed to reach the profit target, Sanlam had the right to give back its stake to AfroCentric at cost plus interest.

This “put option” resulted in R23m conditional interest for the group during the period. AfroCentric had not responded to requests for comment by the time of publication.

The group’s revenue from healthcare services — its largest source of income — rose 15.9% to R1.3bn as it took new customers on board including the Polmed healthcare administration contract that Medscheme won from rival Metropolitan. It also worked on merging with Bonitas the Liberty Medical Scheme that Medscheme administers.

It made a R219.8m pretax profit, 45.8% better than the previous comparative period.

Keith McLachlan, who manages the small-cap fund at AlphaWealth, said AfroCentric had performed better than expected. The group is among the fund’s top 10 holdings.

“If you strip out the accounting-based adjustments, the group’s operations grew dramatically over the period,” McLachlan said.