Build­ing steadily on two strong brands

Financial Mail - Investors Monthly - - Analysis - Stephen Cranston

You may remember Mo­men­tum Metropoli­tan by its old name, MMI. Cur­rent CEO Hil­lie Meyer (who was also CEO in the early 2000s) thought, wisely, that MMI didn’t mean much — there are mo­tor deal­ers with that name. And it was worth high­light­ing the two strong brands, Mo­men­tum and Metropoli­tan, in its sta­ble. One of Meyer’s first de­ci­sions was to can­cel the head office’s move from Cen­tu­rion to Sand­ton.

While Old Mu­tual and San­lam at­tempt to stretch their brands from the sub­sis­tence farmer to the CEO, Mo­men­tum has two over­lap­ping brands. Metropoli­tan was known as

Homes Trust and was con­trolled by San­lam for most of its his­tory be­fore it was taken over by one of the first em­pow­er­ment con­sor­tiums, New Africa Cap­i­tal. It re­mains largely self-con­tained in its of­fices in Tyger Val­ley, though af­ter the 2010 merger with Mo­men­tum, the em­ployee ben­e­fits and as­set man­age­ment unit merged with Mo­men­tum’s.

Mo­men­tum was part of FirstRand un­til 2010 and built an en­tre­pre­neur­ial cul­ture, with Lau­rie Dip­pe­naar as its chair. It was, for sev­eral years, the most suc­cess­ful linked in­vest­ment service provider in the in­dus­try with an un­matched rep­u­ta­tion for service to fi­nan­cial ad­vis­ers.

MoMet is un­doubt­edly a re­cov­ery story — in the in­terim results to De­cem­ber 2019 there were green shoots.

The value of new busi­ness mar­gin of 0.6% lags be­hind even the 1% of one of its weak­est com­peti­tor, Lib­erty, but at least MoMet’s ba­sic EPS were up 25% to 104.3c. The mar­ket has con­fi­dence in Meyer and his two main lieu­tenants, deputy CEO Jeanette Marais and fi­nance direc­tor Risto Ke­tola.

Ba­sics such as an­swer­ing calls quickly have been im­proved and the group is on the front foot again with in­no­va­tive prod­ucts such as the En­hanced Growth Op­tion.

Meyer has im­proved fi­nan­cial man­age­ment and is build­ing up the short-term in­sur­ance busi­ness with the ac­qui­si­tion of Alexander Forbes In­sure, which will double the size of the short-term book. It will still have barely 4% of the personal lines mo­tor mar­ket.

The pre­vi­ous man­age­ment also made an ac­qui­si­tion from Forbes, Guardrisk. This helped to di­ver­sify the earn­ings stream from the group as it earns money by let­ting com­pa­nies buy into cells, which al­lows them to write in­sur­ance on the Guardrisk li­cence.

Metropoli­tan is a dis­tant third af­ter Old Mu­tual and San­lam, but it is steadily push­ing up its new busi­ness mar­gin from 2.3% to 2.7%. The key to the busi­ness is man­ag­ing agency pro­duc­tiv­ity. Poor pro­duc­ers have been culled.

Di­rect op­er­a­tional ex­penses have been re­duced by 4% year on year. The un­der­writ­ing has also been man­aged well, with enough pre­mi­ums to pay claims and give some gravy to share­hold­ers.

Meyer would love the group to be the clear No 2 in health be­hind Dis­cov­ery, but ahead of Med­scheme. It ad­min­is­ters the Govern­ment Em­ploy­ees Med­i­cal Scheme and has a size­able open scheme. It could be a big prize for MoMet if it gets this right, but Old Mu­tual, San­lam and Lib­erty have all come a crop­per in med­i­cal aid.

Meyer will need to man­age the in­vest­ment ju­di­ciously.

Its em­ployee ben­e­fits strat­egy is less risky. It claims that Funds@Work is the sec­ond largest um­brella af­ter Old Mu­tual’s Su­per Funds and a strong po­si­tion in group risk — which is volatile as un­der­writ­ing is far less smooth than in the re­tail book.

Perhaps the big­gest at­trac­tion is its joint ven­ture in In­dia, Aditya Birla Health In­sur­ance. Its part­ner is one of In­dia’s largest con­glom­er­ates. It is still mak­ing startup losses, though at R150m Mo­men­tum is hardly bet­ting the farm. Premium grew by 88% and it now has 5.2-mil­lion lives cov­ered and it dis­trib­utes through 10 bank net­works.

The MoMet share price has been re­mark­ably sta­ble, down 1% when even its former par­ent, FirstRand, is down 20%. As a mid-cap share MoMet is not as read­ily trad­able. In the cur­rent cli­mate, its share price could get worse be­fore it gets bet­ter. But it looks in­ter­est­ing on a three-year view. ●

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