UK next best thing for RMIH
As FirstRand turns to developed markets in the medium term.
Herman Bosman, the CEO of Rand Merchant Investment Holdings Limited (RMIH), says the odds are that the group will find the large financial services business it is looking for in the UK.
Speaking to Moneyweb on Monday, he said UK investors are familiar with RMIH as a business and that the country has a good regulatory system, shared language and geographic proximity to South Africa.
RMIH is looking to invest in a traditional financial services business that can play a “meaningful role” alongside Discovery and MMI, Bosman said. These businesses are respectively worth R20 billion and R10 billion to the investment holding company.
“We’ve scoped the South African market quite well and there are not many opportunities of that size that are available and of interest, so increasingly we are thinking that the investment may well be offshore,” Bosman noted.
He said it is unlikely to be a consumer facing business and cited a reinsurance specialist, an insurance life book and pension liability aggregators as the type of wholesale businesses that RMIH might be interested in.
RMIH is closely watching current corporate activity, including the sale of Barclays Africa Group, talk of a break-up in Old Mutual and share price movements at Alexander Forbes.
None of these are of particular interest from an investment point of view, Bosman said, but shifts in the competitive landscape are noteworthy.
“A volatile market opens up opportunities. If any are of interest, the windows don’t last long. You almost have to form a view of the assets you may be interested in, even if they aren’t available, because they could become available,” Bosman said.
For the six months to December 2015, RMIH, which holds stakes in Discovery, MMI and OUTsurance, reported normalised earnings 4% ahead of the prior period at R1.6 billion.
Discovery’s profits were held back by investment into new initiatives, while MMI posted a loss following unusually high mortality and morbidity claims.
OUTsurance, of which RMIH holds an 83% share, grew normalised earnings 25% to R773 million, as its Australia business Youi posted stronger profits following a benign claims experience.
In New Zealand, Bosman said competitors are using retention teams to keep clients from switching to Youi New Zealand. “We’ve seen an increase in advertising spend from the likes of Suncorp and AIG, who know what we’ve done in Australia and are a bit more weary in New Zealand,” Bosman said.
Asked whether he was comfortable with Discovery’s myriad investments – including those into banking, Ping An and building out the Vitality brand globally – Bosman responded, “That team is always going to run slightly ahead of themselves. That is the make up of the business; that is what made the business great. Am I comfortable? I would say I’m not uncomfortable.”
He said RMIH supports Discovery management and that in the next six to 12 months the business needs to show some consolidation.
FirstRand keen on developed markets in the medium term
Banking group FirstRand – in which RMIH’s sister company Rand Merchant Bank Holdings (RMBH) has a 34% stake – said on Tuesday that over the medium term, “developed market dynamics represent an attractive risk/return profile for shareholders”, given the “seemingly systemic macro pressures facing emerging markets”.
Reporting results for the six months to December 2015, FirstRand said profits rose 1% to R11.3 billion as internal and external pressures – including falling commodity prices and low levels of domestic household consumption – hurt the South African economy.
“Against this challenging economic backdrop, FirstRand grew normalised earnings 9% and produced an ROE [return on equity] of 23.4% for the six months to December 2015,” the group said in a stock exchange filing.
FNB, its retail banking franchise in South Africa, grew normalised earnings 57% to R6.2 billion over the period.
FirstRand warned that retail and corporate bad debts are likely to increase in the second half, and advances growth will decline.
“FirstRand remains fully committed to growing in the territories on the African continent where it already has established a physical presence. The risks in many of these countries have elevated considerably, however, and initiatives will be reassessed within a revised risk/return framework,” the group said.
FirstRand’s share price was down 5.01% in early morning trade.
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