Wednesday, August 07, 2013 5:47 PM / By Helen Thomas / WSJ
Old Mutual may need a rebranding: The company is no longer a mutual and is focused on developing some of the youngest insurance markets in the world.
The insurer's solid first-half results were tempered by worries about the economic outlook in South Africa, which accounts for 70% of operating profit, and the weakening rand. Profit rose 14% in constant currency terms but only 1% after factoring in foreign-exchange movements.
But the company's shares rose 2.9% Wednesday. For investors seeking to buy into Africa's growth story, Old Mutual could be worth a look.
Old Mutual has been selling and winding down businesses since its near-death experience in the financial crisis. The simplified company is showing signs of improvement. A second successive quarter of net inflows in U.S. asset management hints at a turnaround there. After a first-quarter hiatus due to new regulations, U.K. fund-management flows rebounded, up 40%.
But Old Mutual is increasingly a long-term bet on the growth of financial services in Africa. The slowing South African economy is putting pressure on consumers. But in rand terms, Old Mutual's South African profit growth remained robust, helped by a 50% jump at Mass Foundation, which sells savings and protection products to the growing black middle class.
That provides a base for expansion in promising markets like Ghana, Nigeria and Kenya, tweaking basic products like funeral-cost insurance from its South African offering. The Sub-Saharan African economy is still forecast to rise by 5.1% this year, notes the company. Old Mutual's profit from the rest of Africa is already equivalent to 11% of earnings from South Africa. True, that mainly comes from longstanding markets like Namibia. And as Prudential PLC found in Asia, starting from scratch means fast-growing markets can take years to turn a profit.
But rumblings that sector darling PrudentialPRU.LN -0.25% is eyeing the Continent could highlight the opportunity presented by Africa's low insurance penetration: Africa accounts for less than 2% of world-wide insurance premiums with about 15% of global population. And at about nine times forecast earnings, Old Mutual trades in line with Europe's insurance sector but at a hefty discount to Prudential. Near-term worries in South Africa may weigh on the shares. But that gap could start to close were investors to get into Africa.