Building steadily on two strong brands

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. ●