Although the pandemic has created excess mortalities and weighed on the profits of life insurers, it has reinforced the importance of life insurance and the importance of the institutions that underwrite this coverage for the wider economy.
The pandemic has become rampant, mortalities have fallen (although they remain slightly elevated on some measures and we still don’t know the effects of the long Covid) and life insurers’ profits are recovering nicely.
Despite this, not a single JSE Life Insurance Group share price is trading higher than it was at the close on January 31, 2020 (pre-pandemic) and all are currently trading at low levels. significant discounts from their intrinsic values (EV):
Discovery (DSY) continues to pump money into the oven that is its loss-making bank, while watching members transition from its high-end to low-end (lower margin) programs.
Despite the group’s solid management, it looks like Discovery’s prospects are, at best, likely to tread water for the foreseeable future.
Sanlam (SLM) has established a good pan-African partnership model and recently made a bid to take control of AfroCentric Investment Corporation (ACT).
The latter may allow him to compete against Discovery’s vitality, while bolstering Sanlam’s other offerings (via AfroCentric).
This adds to the argument that Discovery could drift away for now, while the pan-African partnership and tie-up with AfroCentric adds to Sanlam’s growth appeal.
Among the two most reduced in relation to their electric vehicles, Old Mutual (OMU) has gone through several years of cleaning up, unbundling its UK operation (now called Quilter plc), its stake in Nedbank and being embroiled in a spat public with its former CEO Peter Moyo.
The band has a lot of work to do to repair its reputation on this front.
Read: Old Mutual falls despite good results
That leaves Momentum Metropolitan (MTM), which is our preferred choice in this sector.
Momentum Metropolitan’s share is both cheap compared to its peers (the average EV discount is now 34% while MTM’s is currently 49%) and cheap compared to its own historical discount on electric vehicles (which is on average 17%).
In fact, when measured against its own average discount to EV, its stock price is currently trading more than one standard deviation above its average!
So if all Momentum Metropolitan’s stock price does is “average return” to its historical 17% discount, then there is a “free” 32% upside in its current price.
In the meantime, patient investors can take advantage of the stock’s 6.6% dividend yield…
While all life insurers’ profits are expected to recover post-pandemic, Momentum Metropolitan’s management has quietly driven the group’s turnaround.
He cut head office costs, concentrated other operations, and began to grow the group’s major franchises. While these efforts have been clouded by Covid distortions, as the effects of the pandemic dissipate these initiatives should begin to be reflected in firmer sustainable margins and create medium-term growth leverage for its bottom line. which many of his peers currently lack.
Finally, Momentum Metropolitan’s balance sheet is well capitalized. While members of management have reaffirmed their commitment to paying generous dividends, they have also allocated capital to a reasonably sized share buyback program. And when a company buys back its shares at a discount of around 49% to its view of fair value, you can be pretty confident that it will be extremely accretive for the remaining shareholders.
Read: Momentum Metropolitan profits soar
Even if you don’t think the discount to EV will “signify a comeback”, the combination of earnings growth and highly accretive stock buybacks should well boost EV going forward and drive the price of the stock. action with him.
In conclusion, while we believe the broader life insurance market offers good upside potential at a reduced price, we believe Momentum Metropolitan offers the best upside.
At just over 1,500 cents per share, it currently offers investors the unique combination of a heavily discounted stock, a strong earnings recovery, and the combination of good dividends and accretive stock buybacks.
Listen/Read: Hillie Meyer, CEO of Momentum Metropolitan, discusses SAfm Market Update annual results with Moneyweb (or read the transcript here)
Listen: Keith McLachlan talks more about this action with Simon Brown in this MoneywebNOW podcast (or read the transcript here):
Keith McLachlan is Head of Investments at Integral Asset Management.
* McLachlan and Integral Asset Management may hold Momentum Metropolitan, Sanlam and Discovery in various client portfolios.