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Standard Bank wants to pull the trigger and buy Liberty

But will they be able to deliver on the growth implied in their share price? And what about the potential interim dividend to shareholders announced in June?

I have picked up a number of articles in the last few days in a number of publications, but as many of you who read my ramblings in these articles know, I tend to refer to Moneyweb. So here is the link to the article published on Moneyweb on July 16, 2021 (Read: Standard Bank + Liberty: Is bancassurance back? – Moneyweb)

Standard Bank is Africa’s largest lender by assets and now in accordance to the articles I have read would like to buy out the minority shareholders of insurance group Liberty.

Now, anybody in the financial industry knows (and even in my own personal opinion) that Liberty has gone from being a leading and creative provider of life insurance products to a bit of a plodder, losing life assurance market share to Discovery Life, Momentum and Hollard.

We should also remember that since 1991 Standard Bank and Liberty have a history of working together – think of investment product provider and asset manager Stanlib, which is a joint venture between Liberty and Standard Bank.

Standard Bank already controls 54% of Liberty shares. If this deal gets finalised it will see the end of the JSE listing (but this is a totally different discussion entirely).

I also would like to refer back to my article on June 11, 2021, where we discussed the Standard Bank results and the fact that Standard Bank announced that it was to pay an interim dividend to its shareholders.

With this announcement to buy out the minority shareholders of Liberty will Standard Bank still pay the dividend?

No articles I have seen on this deal refers back to the June 1 dividend announcement. One would hope that this potential deal was already on the boardroom table at the time and the payment of the interim dividend by Standard Bank had been factored into its planning.

So how does the, ‘avoid the human factor score’ view Standard Bank and Liberty’s ability to deliver the growth implied in its share price?

New Age Alpha’s ‘avoid the human factor’ tool – which is free to use and scores over 6 000 shares globally, including many JSE-listed shares – provides a score for Standard Bank of 31.7% (a little improvement from the 31.9% at the beginning of June 2021).

This score indicates that Standard Bank has a 31.7% probability of not delivering on the growth implied in its current share price. This probability can be turned over to state that Standard Bank has a 68.3% probability of delivering the growth implied in its share price.

Liberty on the other hand reflects a human factor score of 70%. This score indicates that Liberty has a 30% chance of delivering the growth implied in its share price.

We also have a further concern that Standard Bank indicates that it has (or is going to) offer Liberty minority shareholders a price of 33% of the share price on Wednesday, July 14. This would have the effect of increasing the human factor score for Liberty, thereby further indicating that Liberty’s probability of delivery on the growth implied in the share price would further be dampened.

We can only hope that for Standard Bank the efficiencies that it intends to exploit can improve its ability to deliver on its share price in the future.

We at Global & Local Asset Management use the ‘avoid the human factor’ strategy to manage our collective investment scheme portfolios. The strategy focusses on managing portfolios like an actuary and not a portfolio manager.

The strategy comprises developing probabilities which indicate the chance of a listed company not being able to achieve the growth implied by its current share price.

The probability used the only two things we know for sure about a listed company: that is the current share price and the profitability of a company as reported in the published financial results. From these two data inputs we can calculate the probability of the company being able to produce the results implied in the share price, based on whether the company has done this in the past 16 reporting periods.

Simply put, the lower the human factor score a listed share has the lower the risk in holding that share.

Using a probability-based approach to portfolio management

Using a probability-based approach to stock selection, we identify and avoid the risks present when share investors interpret vague and ambiguous information inherent in share prices in a systematically incorrect way.

The human factor score measures the probability of the listed company generating the growth implied in its current share price.

The approach taken by Global & Local Asset Management is not to manage portfolios like a portfolio manager but rather to adopt actuarial techniques to asset management.

If you would like to know more about how the human factor score tool works and how we ‘avoid the losers’, then please contact us at Global & Local Asset Management.

ADVISOR PROFILE

Mauro Forlin

Global & Local Asset Management

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The perils of irresponsible transformation.

No growth,just more corporate politics.

The Liberty share price was at a 30 year low, and it manages about R500 Billion to R600 Billion in assets, so maybe it was a bargain.

End of comments.

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