Unbundling of RMI Holdings — soon to be OUTsurance — unlocks R36bn for shareholders

OUTsurance, currently one of the “kids” in the JSE-listed RMI Holdings portfolio, has grown up and will become head of the household, so to speak. In terms of restructuring announced this week, RMI Holdings will, in time, be renamed OUTsurance and will remain the dominant part of the listing. Smaller parts, fintech arm RMI AlphaCode and RMI Investment Managers, will remain part of the listing for now.

The Holdco structure will be dismantled and RMI CEO Herman Bosman and his investment team of three will have worked themselves out of a job.

This follows an announcement in September that RMI intended to unbundle its 25% stake in Discovery and 27.3% stake in Momentum Metropolitan Holdings (MMH) to shareholders. This should be done by May. RMI said earlier it had sold a 30% stake in UK insurer Hastings for R14.6-billion.

With R11.8-billion of gross debt, RMI was never able to ride off into the sunset after unbundling cash cows Discovery and MMH.

Instead, the plan at the time was to explore creating an active portfolio of unlisted, non-competing and collaborative businesses in the short-term insurance industry. Hastings would, in effect, be investment number one in this. For this, RMI proposed it raise about R6.5-billion via a rights offer.

“Then Sampo came to us with their offer and that changed the picture,” says Bosman. Even then, RMI did not abandon its active investment idea and spent time exploring opportunities in short-term insurance.

“But we could find nothing at the right price, right quality, that was available within a suitable time frame,” he says.

This coincided with the realisation that OUTsurance was a mature company with effective governance reporting and growth prospects.

“In its own right, OUTsurance is a growing short-term insurance group operating across multiple geographies. It could, in time, drive international expansion independently, should attractive opportunities arise.”

Also, RMI was trading at a premium to OUTsurance’s net asset value, a clear signal the market liked the asset.

RMI has unlocked significant value for shareholders since it began the process, which Herman Bosman says began in 2017 with holding companies becoming unpopular

In another clear signal, RMI’s share price rose 8.43% to R49.27 on Wednesday, after the Sens announcement.

The announcement that OUTsurance will be directly listed coincided with – and was overshadowed by – the release of RMI’s interim results to end December 2021.

These results were mixed. The distorted 2020 base meant underperforming segments in 2020 showed strong recoveries in 2021, whereas those that did well in lockdown had a tough 2021, says Victor Mupunga, Old Mutual Wealth Private Clients Securities analyst.

In aggregate, normalised group earnings were down 6% to R1.9-billion. OUTsurance was the laggard owing to adverse weather conditions and normalisation of claims trends as consumers returned to previous travel habits.

MMH was a standout performer as earnings increased 36% on the back of strong market returns. Lower interest rates, reducing group funding costs, were the other positive performance driver, says Mupunga.

On unbundling, Mupunga believes it will see a simpler structure, no holding company and a higher dividend payout ratio.

RMI has unlocked significant value for shareholders since it began the process, which Bosman says began in 2017 with holding companies becoming unpopular. The process was complicated: MMH wasn’t growing, debt was a headache; then came Covid-19.

The listed firm now trades at an almost unheard-of 2% discount to its intrinsic net asset value, having previously traded at about a 30% discount prior to the September announcement. This is a roughly 28% value unlock. The share price rose from R30.81 to R49.40, up 38%, compared with increases in the JSE All Share Index of 17% and the Life Insurance Index of 6% over the period.

RMI will return value to shareholders of about R33.4-billion (based on market capitalisation of Discovery and Momentum Metropolitan or R21.83 per share on 11 March.)

RMI has declared an ordinary and special dividend of R2.54-billion (165.5 cents per share). With the unbundling, RMI will deliver about R36-billion in value to shareholders, or R23.48 a share, or 50% of RMI’s share price as of 11 March 2022.