Old Mutual Resists Pressure to Sell More Assets

By: Alice Young
Alice Young
Alice joined the Invezz team after motherhood convinced her to make a career change from actuary-ing. She brings a… read more.
on Aug 9, 2012

On 8 August 2012, the Financial Times reported that senior executives at the international long-term savings, investment and protection company Old Mutual (OML) were resisting pressure on behalf of analysts to sell more assets, particularly its stake in South Africa’s Nedbank (NED). The FTSE 100 insurer, still recovering from two consecutive years of posting losses, recently reported a 26 percent increase in after-tax profit for the six months ended June 30.

Bloomberg reports that Old Mutual, the UK’s third-largest insurer by market value, still has to pay off £1.5 billion of debt by the end of 2012, and another £200 million next year, as a result of two years of losses related to hedging failures in 2008. Earlier in 2012, Old Mutual disposed of its Nordic businesses for £2.1 billion, using about £1 billion of the money to pay shareholders a special dividend.

!m[](/uploads/story/243/thumbs/pic1_inline.png)Recently, the group has faced calls to sell more businesses, most notably its 54 percent stake in Nedbank. The FT quotes one top 20 shareholder who noted that selling the South African bank share would be “seen almost universally as a good thing”. Eamonn Flanagan, analyst at Shore Capital (SGR) hypothesised that if Old Mutual sold its Nedbank stake, the share price would move up quite quickly.

Old Mutual executives, however, are not of exactly the same opinion as the analysts. Phillip Broadley, the company’s finance director, said that analysts were “trying to drum up interest in short-term position taking”, as quoted by the FT. Julian Roberts, Old Mutual’s CEO, said that the company was in no rush to make such disposals. “Even if I wanted to rationalise the portfolio more I’m in no hurry, because we’re growing our business,” he added.

In the meantime, Bloomberg reported that Old Mutual’s first-half net income rose to £931 million, from £738 million a year earlier, or a 26 percent increase. In addition, according to the insurer’s website, the interim dividend for the year was up by 17 percent, from 1.50p, to 1.75p.
Old Mutual says that its ownership stake in Nedbank facilitated the expansion of its South African footprint, with strong sales and margins in the South African mass market, and excellent sales momentum in emerging markets. Nedbank, which Old Mutual is being urged to sell, also contributed to the rise in profit. Earlier in August, Bloomberg reported that Nedbank has been boosting lending to consumers to win a bigger share of South Africa’s consumer market, adding 76 outlets and 385 ATMs. In addition, it also developed software for smartphones so as to attract more customers.

The FT reports that on August 8, shares in Old Mutual went down by 1.5 percent to 167.2p, but were still up 22.9 percent in 2012. While the company has seen increased investment in the first half of the year, “in the second quarter, the very volatile conditions saw clients taking a conservative approach to asset allocation and awarding new mandates,” says Mr Roberts, as quoted by Bloomberg.

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