Old Mutual Drops Most in Six Weeks as Profit Misses Estimates

Johannesburg, South Africa, Capital Markets in Africa: Old Mutual Plc, the London-based insurer planning to split into separate businesses, dropped the most in more than six weeks as first-half profit missed analyst estimates and the company said the rest of the year will be fraught with challenges.

The stock slid as much as 6.3 percent on Thursday, the biggest intraday decline since June 24, before paring losses to trade 5.6 percent down at 212.90 pence as of 9:26 a.m. in London. It was the worst performer on the eight-member FTSE 350 Life Insurance Index. The drop pared Old Mutual’s gains this year to 19 percent, giving the insurer a market value of 10.5 billion pounds ($13.6 billion).

Pretax adjusted operating profit dropped 9 percent to 708 million pounds, hurt by a weaker rand against the pound compared with the first half of 2015 and lower equity markets, Old Mutual said in a statement. An uncertain environment in Old Mutual’s three largest markets of South Africa, the U.K. and U.S. “may lead to further challenges” in the second half, the company said.

“The interims reported by Old Mutual this morning were a series of misses against expectations,” Eamonn Flanagan, an analyst at Shore Capital Group Ltd. in London, said in a note to clients. He maintained his buy rating on the stock as the “demerger of the business will release significantly more value than implied by the current rating,” the analyst said.

Africa’s biggest insurer is preparing to break up its wealth, asset management business, emerging-markets unit and Johannesburg-based lender Nedbank into standalone entities by the end of 2018. The split is the culmination of a strategic review started by Chief Executive Officer Bruce Hemphill in November as he seeks to boost profitability and unlock value with the company’s different divisions worth more individually than grouped together.

Good Progresses
“We are making good progress with our managed separation strategy,” Hemphill said in the statement. Head office will have lost 50 percent of its staff by the end of this year, cutting jobs to 140 from 275 and leading to savings of 10 million pounds by next year. Old Mutual remains “absolutely confident that this is the right strategy, ” he said.

Old Mutual’s emerging-markets unit was impacted by a slowdown in South Africa, where the central bank forecasts that the economy won’t grow at all this year, while its U.S. asset management business reaped less performance fees than a year ago. Old Mutual’s U.K. wealth unit had to contend with Britain’s decision to leave the European Union, which hurt the pound.

Brexit hasn’t increased risks for the insurer nor changed its plan to split the group, Hemphill said by phone from London.

Old Mutual plans to repay 112 million pounds of debt as a note matures in October and is in early discussions with bondholders about securities that are set to mature after 2018, Financial Director Ingrid Johnson said on the same call. “This is a key part of our stakeholder engagements and is very much linked to asset realizations,” she said.

Source: Bloomberg Business News