Analyst recommendation

                                                                                                           As at 27 March 2025

Executive Summary

On 18 March 2025, Old Mutual released its financial year 2024 results. The key highlights from the results were as follows:
1. Headline earnings increased by 20% to R8.8 billion, driven by higher results from operations, stronger shareholder investment returns, and a non-repeat of prior year once-off losses relating to IFRS 17 accounting transition.
2. Results from operations increased by 4% with the main contributors being:
Old Mutual Insure increased by >100% from R524 million to R1 808 million as the underwriting margin improved from 0.3% to 6.2% due to pricing and underwriting actions. Old Mutual Investments increased by 37% to R1 683 million helped by assets under management increasing by 8% while non-annuity revenue increased by >100% from R429 million to R911 million due to fair value gains in its alternatives business and positive market movements in its Specialised Finance business. Personal Finance and Wealth Management decreased by 26% to R2 741 million as the Personal Finance division was impacted by a worse mortality experience, strengthening of the valuation basis and an adverse movement in yields. Net result from group activity losses increased by 23% to R2 217 million driven by a R483 million increase in the bank startup expenses. Management guided the bank to have a loss run rate of R1.1 billion to R1.3billion in the short-term
reducing to break-even by financial year 2028.
3. Shareholder investment returns increased by 25% to R2.7 billion.
4. The group value of new business (VNB) decreased by 8% with a decrease of 5% in sales volumes as represented by life annual premium equivalent (APE) sales. The VNB margin increased from 2.3% to 2.5%.
5. The full-year dividend increased by 6% to 86 cents per share.
6. We slightly increased our intrinsic value by 3% to R13.70 as we included a new period in our valuation. We maintain our view of a buy with the current share price having an upside of 15% to our intrinsic value.

Analyst thesis

We currently have a buy rating and with our main views being:
• Old Mutual has 12% upside to our intrinsic value. We believe a continuation in an improving consumer from lower interest rates combined with management efforts to improve profitability through margin-accretive sales (mix), interventions to improve persistency and expense and capital management should serve as potential catalysts to unlock this upside.
• We expected the near-term loss run rate of the bank to be a headwind in an already very competitive environment in both the insurance and banking sectors.
• We prefer Sanlam due to having a more diversified business with higher margins and a historic track record of higher growth.

Results

Valuation

Table 3: Valuation

 

Source: FactSet