Momentum Metropolitan results promise true momentum for investors

8 Mar 2023

Momentum Metropolitan Holdings’ dividend payment and share buyback programme could be attractive to income-seeking investors.

Shareholders will receive an interim dividend of 50 cents a share. During the six months to the end of December 2022, the financial services giant repurchased R750-million of its own shares trading at a discount to embedded value (EV).

Embedded value is an estimate of the value of an insurance company’s existing policies, taking into account the future premiums to be paid, expected claims to be paid out, and expenses to be incurred.

The share buy-back created an EV uplift of R583-million, and the board has agreed to a further R500-million repurchase while the shares trade at a discount of more than 25% to EV.

‘Reinvent and Grow’ strategy paying off

Momentum Metropolitan reported a 46% vault in normalised headline earnings to R2.2-billion for the six months to end December 2022, 46% higher than the prior period. Operating profit more than doubled to R1.9-billion on the back of fewer deaths and positive investments.

Group chief executive, Hillie Meyer, says the earnings results reflect the successful execution of the company’s Reinvent and Grow strategy.

“We are grateful to see the easing of Covid-related death claims and the positive mortality-experience variances in our main life insurance businesses. This indicates that the pandemic has reached its endemic phase.

“The quality of the earnings number is encouraging: it was a good all-round performance and without any significant positive one-off factors. While our earnings outlook has improved, our new business volumes did not meet expectations for some of the product lines, mainly as a result of the prevailing economic headwinds and lack of growth in the industry.”

Risto Ketola, group finance director, noted the 18.4% return on equity for the six-month period.

“The high return on capital, combined with strong cash generation, has enabled us, again, to declare a strong dividend and to continue buying back our own shares,” he says.

Businesses that contributed most to the bottom line include Momentum Life, which improved normalised headline earnings to R689-million from R30-million in the prior period.

Momentum Corporate grew normalised headline earnings to R556-million compared to R370-million – this includes growth of 64% in operating profit to R494-million.

Excluding the impact of the one-off items in the prior period, Guardrisk’s normalised earnings increased by 18%. Momentum Metropolitan Health’s normalised headline earnings improved by 55% to R146-million.

Looking ahead, Meyer says management expects earnings to be robust for the rest of the financial year.

“We are cautiously optimistic that we will achieve the Reinvent and Grow financial target range for the 2024 financial year, namely normalised headline earnings of R4.6-billion to R5-billion and ROE of 18% to 20%.

“While our earnings outlook has improved over the past 18 months, recent pressure on sales volumes indicate that South Africans’ disposable income remains under pressure due to rising interest rates, high inflation and the lack of economic growth in South Africa. This is likely to put ongoing affordability pressure on new business volumes,” he says. BM/DM

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‘Reinvent and Grow’ strategy paying off