Our opinion on the current state of OMU

Old Mutual (OMU) is a premium African financial services group that offers a broad spectrum of financial solutions to retail and corporate customers across key market segments in seventeen countries. Old Mutual's primary operations are in South Africa and the rest of Africa, and it has niche businesses in Latin America and Asia. This company is what is left after Quilter, Brightsphere and most of Nedbank, were unbundled from the original Old Mutual Plc which was listed on the London Stock Exchange. Some estimates indicate that Old Mutual is about 30% below the company's embedded value. Currently, the company has about R1,one trillion under management. A large part of its loss in the period was the R8bn write-down in its investment in Nedbank which is now recovering. The company is unbundled 62m Nedbank shares into the hands of shareholders worth about R10,4bn in the ratio of 1,32 Nedbank shares for every one hundred Old Mutual shares held. Obviously, insurers like OMU are vulnerable to the impact of the pandemic and the company announced a R2bn increase in its provisions in this regard. In its financials for the year to 31st December 2022 the company reported headline earnings per share (HEPS) of 139,8c compared with 118,5c in the previous year. Gross insurance premium revenue increased from R83,84bn to R85,67bn. In a report on the first quarter of 2023 the company reported gross written premiums up 19% and a 22% increase in gross flows. The company's discretionary capital balance fell from R3,5bn at 31st December 2022 to R1,4bn at 31st March 2023. In a trading statement for the six months to 30th June 2023 the company estimated that HEPS would increase by between 11% and 31%. On a PE of 6,84 and a dividend yield (DY) of 4,94, we see this blue-chip share as relatively cheap now. Technically, the share has been falling since October 2021. Our advice was to wait for a clear break above the downward trendline - which came on 10th November 2022 at 1097c. Since then the share has moved up to 1232c.