BULL POINTS:
■ Decent solvency position
■ New boss plans a streamlining
BEAR POINTS:
■ Grim financial conditions have hit profits
■ Troubled US operation
■ Life sales are under pressure
■ Sprawling business structure
Life assurance, fund management and banking group Old Mutual is having a rough ride. Grim investment conditions meant an £11.6bn investment loss for the group in 2008, compared with 2007's £6.3bn investment profits. In addition, Old Mutual's funds under management fell 5 per cent last year to £265bn.
But perhaps the biggest worry is in the group's US life-insurance operation, where 2007's operating profit of $195m (£132m) was turned into a $679m loss in 2008. Old Mutual's sales of life products in the US also fell by 23 per cent in 2008 to $519m. Many of the group's other operations look under pressure, too. In the UK, sales fell 28 per cent in 2008, while in the Europe and Latin America division life sales fell 24 per cent. Overall, group life sales fell 8 per cent last year. In contrast, at Old Mutual's competitors, Prudential grew its sales by 5 per cent in 2008, and Aviva managed 1 per cent sales growth.
However the news is not all bad. Old Mutual's Nordic operation looks in good shape and life sales there actually rose 30 per cent last year, mainly on the back of a robust performance in Sweden. The group's South African market is also holding up. Partly reflecting the fact that the economy there has continued to grow - the South African National Treasury expects the economy to grow by 1.2 per cent 2009 - Old Mutual's South African life operation grew sales by a decent 14 per cent in 2008. Still, South Africa also presents challenges as operating profits at the group's local banking operation, Nedbank, fell 5 per cent in 2008, while its credit quality deteriorated - Nedbank's credit -loss ratio rose to 1.17 per cent of loans from 0.62 per cent in 2007.
| ORD PRICE: | 53p | MARKET VALUE: | £2.80bn | |
| TOUCH: | 53-54p | 12-MONTH HIGH/LOW: | 136p | 31p |
| DIVIDEND YIELD: | 6.7% | PE RATIO: | 5 | |
| NET ASSET VALUE: | 147p | EMBEDDED VALUE: | 100p | |
| Year to 31 Dec | Gross premiums (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2005 | 4.47 | 1.61 | 25.1 | 5.50 |
| 2006 | 4.71 | 1.71 | 17.0 | 6.25 |
| 2007 | 5.57 | 1.75 | 19.2 | 6.85 |
| 2008 | 5.16 | 0.60 | 8.60 | 2.45 |
| 2009* | na | 0.75 | 11.1 | 3.53 |
| % change | - | +26 | +29 | +44 |
*Keefe, Bruyette & Woods estimates Normal market size: 100,000 Matched bargain trading Beta: 1.8 | ||||
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Nor is the group helped by its sprawling structure, although this is a concern that Old Mutual's bosses have recognised. Chief executive Julian Roberts only took the helm in September, but he has already accepted that Old Mutual has plenty of structural problems to tackle. ''We recognise that our portfolio of businesses is too broad,'' Mr Roberts acknowledged when announcing the group's 2008 results last month. ''We operate in too many geographies and have too many lines of business, a number of which are sub-scale in their respective markets.'' He says that this makes the group complex and difficult to manage.
Some fairly modest measures have already been taken to tackle this. These include selling the Australian business and exiting the Portuguese market. And management plans to close the Hong Kong office after deciding to scale back its aspirations in Asia. But pushing through really significant restructuring won't be easy in today's difficult market conditions. As Mr Roberts also acknowledges, a major rationalisation of the business at present would ''almost certainly destroy value'' - largely reflecting the fact that selling off operations in the current climate would almost certainly mean accepting poor prices. Disappointingly, then, shareholders appear to have a lengthy wait before Old Mutual can streamline itself enough to make the best of tough market conditions.
