Ghost Bites (Momentum Metropolitan | Implats | PSG)

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There’s momentum at Momentum

The life insurance business looks a lot better but watch out for market pressures

The life insurance companies took a serious knock during Covid. They saw the worst of the pandemic – the sharp increase in mortality rates, not just the impact of lockdowns on consumer businesses. When pricing for the risk of life insurance, the actuaries don’t give much weighting to 1-in-100 year events like a global pandemic.

Thankfully, the pandemic has lost its teeth and nobody is sorry to see it go (except perhaps the laboratories that made an absolute fortune from Covid testing). With a normalisation of the mortality rates, headline earnings per share (HEPS) at Momentum Metropolitan jumped from 67.1 cents to 287.2 cents.

The profitability of a life insurance company is driven by operating profit (which is net of claims) and investment returns (reserves are invested in the market). This makes it tricky to invest in these companies, as they are exposed to broader equity markets in addition to their operations.

In the year ended June 2022, 77% of headline earnings was attributed to the operations and the rest was contributed by investment returns.

Notably, Value of New Business (VNB) fell by 14%. This number is driven by a set of economic and other assumptions, so part of the decrease is attributed to a negative economic outlook in an environment of rising rates. The group also notes a shift towards lower margin products.

Although the life insurance side of the business is showing far better earnings, the short-term insurance business was smashed by the floods. This is in line with what we’ve seen at other insurance businesses. In Momentum Insure, headline earnings fell from R167 million to R12 million.

With a full-year dividend of 100 cents per share, the company is trading on a yield of 5.7%. The share price is still trading around 15% lower than in February 2020.

Patience needed in platinum

Sometimes, deals get stuck at the regulators

Regular readers will be well aware that Impala Platinum (Implats) is in the process of trying to acquire as many shares as possible in Royal Bafokeng Platinum (RBP). This is after Northam Platinum secured its own strategic stake in RBP (32.8%) by doing a deal with Royal Bafokeng Holdings. As things stand, Implats holds 39.19% in RBP.

The Northam Platinum transaction was partially settled in shares, which brought the Royal Bafokeng community’s investment vehicle firmly onto Northam’s side of the fence. This is just one investment held by Royal Bafokeng Holdings, with the broader portfolio including stakes in listed and unlisted companies. As B-BBEE investors go, Royal Bafokeng is one of the most successful.

The ongoing fight is at the Competition Tribunal, where Northam Platinum intervened in Implats’ request to move to a controlling stake in RBP. The Competition Commission had already recommended an approval to the Tribunal (where the largest or most competitively sensitive deals must be approved) when Northam intervened and caused a major delay in the process.

This is why we are seeing regular updates from Impala Platinum to extend the “long-stop date” – the date by which all conditions (including this Tribunal approval) must be met. The latest extension is to 3 November 2022.

I wouldn’t be surprised if this deal doesn’t close this year.

PSG confirms the scheme cash payment

Shareholders will receive R23 per share as a goodbye kiss from PSG

On 27 September, PSG’s listing on the JSE will be relegated to the history books. This marks the end of a public journey for an investment holding company that has incubated some incredible businesses.

For example, the way Capitec was built is a global case study in disrupting a banking market and winning through being strategically focused.

As part of the “restructuring” of the group, shareholders in PSG received shares in Curro, Stadio, PSG Konsult, Zeder and CA&S Group through a process known as an “unbundling” to shareholders. The founding management team at PSG retained some of the assets in the group, hence the need for a cash payment to take the remaining investments private. The R23 per share payment will be made before the delisting.

Speaking of CA&S Group, the management team will be presenting at Unlock the Stock on 22 September at 12pm. This is a fantastic webinar format that gives retail investors access to management and the ability to ask questions. All you have to do is register at this link>>>

Little Bites

• Speaking of Royal Bafokeng Holdings, the investment group now owns more than 5% in Transaction Capital.

• A director of a subsidiary of Hulamin has sold shares in the company worth nearly R450k.

• Buffalo Coal has announced that Belvedere Resources has received consent from Investec to assign the convertible debt of $27 million in Belvedere’s favour. It was purchased from Resource Capital Fund for $2 million.

• In a most unusual update, Kibo Energy elected to postpone its AGM as many shareholders (including holders of more than 15% in the company) struggled to get their proxies to work through the Euroclear system. South African pessimists love assuming that everything always works better overseas. Here’s yet another example that this just isn’t true.

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