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Old Mutual feud with fired CEO risks thwarting growth ambitions

Old Mutual’s shares have slumped since the spat with its ex-CEO went public.
Old Mutual is trading at a deep discount to its South African peers. Image: Moneyweb

Old Mutual’s homecoming may get even rockier next year as an ongoing battle with its former head risks distracting the South African insurer from handling weak economic growth and rising competition.

The firm will end 2019 still sparring with ex-chief executive officer Peter Moyo. The dispute has been in court since June, about a year after Old Mutual moved its listing back to Johannesburg. That return — celebrated with Moyo and Chairman Trevor Manuel parading the city’s streets — reversed a two-decade long expansion that took the firm from London, New York and Beijing, to focus on Africa.

“They want to be pan-African and there are going to be opportunities, but I am not sure they’re going to be in the right frame of mind to capitalise on those,” said Warwick Bam, head of research at Avior Capital Markets. “That’s what everyone is concerned about — the internal disruption.”

Old Mutual is struggling to grow sales and operating earnings amid tepid capital markets, a moribund South African economy and the worst Zimbabwe crisis in 10 years. Rivals, meanwhile, are moving ahead. Liberty Holdings Ltd. and Momentum Metropolitan reorganised their businesses to cope with the downturn, while Sanlam sealed a $1 billion deal that made it Africa’s No 1 financial-services firm outside of banking.

Read more about Old Mutual’s ugly fight with Peter Moyo here.

Old Mutual’s shares have slumped 13% since the company said in May that it had suspended Moyo, making it the second-worst performer on the five-member FTSE/JSE Africa Life Assurance Index. The stock hit a record low on September 3.

 

Still, the dispute shouldn’t weigh too much on the 174-year-old company’s prospects, according to Renier de Bruyn, an investment analyst at Sanlam Private Wealth in Cape Town, who says the stock offers good value and Old Mutual remains a leading provider of funeral cover in South Africa’s mass-market segment.

These services aren’t risk-free though. Old Mutual’s retail customers have less to spend on the back of rising utility bills and taxes and are being hammered by the country’s persistently high jobless rate.

Such headwinds open a gap for new market entrants as consumers shop for better pricing. Capitec Bank and Sanlam are seeking to take advantage of this through a partnership that has seen them sign on tens of thousands new clients monthly.

Avior’s Bam, who has an outperform rating on Old Mutual, also sees value at current levels.

While Old Mutual’s distribution is a key asset, this can “be eroded if management’s attention is distracted or if they have less bandwidth because they have to deal with other noise,” he said. “Succession planning and depth of management are the main concerns as to why nobody is willing to have strong convictions over the growth in Old Mutual.”

Interim CEO Iain Williamson said management continued to execute and make progress on strategy despite the challenging external environment.

“While it would be disingenuous to suggest that the litigation initiated by our former CEO, Peter Moyo, has not had an impact on the organisation, our teams are focused on their priorities and our operations continue uninterrupted by the ongoing litigation,” he said.

Rest of Africa

Old Mutual’s exposure to the rest of Africa, where it has operations in 13 countries, isn’t pain free either. After turning around its East African business, the company is still restructuring its West African unit to reduce costs, and has had to exclude Zimbabwe from its key financial metrics because of hyper-inflation.

For now, Old Mutual’s growth ambitions aren’t a priority for investors as long as the management dispute persists, according to Bradley Preston, head of listed investments at Mergence Investment Managers.

“The focus is so much just on resolving the leadership issue there that I don’t know if anything else is really going to feature in investor’s minds,” he said. “If they can show the operational delivery during this process that may put some of the investor’s concerns at ease, but I just think it needs to be resolved.”

© 2019 Bloomberg

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Maybe OM must buy some more shares back at these cheap prices.

Makes sense, that is the purpose of issuing shares.

End of comments.

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