Unbundling of RMI Holdings, soon to be renamed OUTsurance, unlocks R36bn for shareholders

OUTsurance, currently one of the “kids” in the JSE-listed RMI Holdings portfolio, has grown up and will become head of the household, so to speak. 

In terms of a restructuring announced on Wednesday, the listed entity RMI Holdings will, in time, be renamed OUTsurance and will remain the dominant part of the listing. Smaller counterparts, fintech arm RMI AlphaCode and RMI Investment Managers, will remain part of the listing, for now. 

The Holdco structure will be dismantled and RMI CEO Herman Bosman and his investment team of three will have worked themselves out of a job.

This latest step follows on the heels of the announcement last September that RMI intended to unbundle its 25% stake in Discovery, and 27.3% stake in Momentum Metropolitan Holdings (MMH) to shareholders. This plan is on track and should be effected by the end of April 2022. In addition, in December RMI announced that it had sold its 30% stake in UK insurer Hastings for R14.6-billion.

It was this announcement that in effect paved the way for today’s news. 

Encumbered with R11.8-billion of gross debt, RMI was never going to be able to ride off into the sunset once it unbundled cash cows Discovery and MMH.

Instead, the plan at the time was to explore the possibility of creating an active portfolio of unlisted, non-competing and collaborative businesses in the short-term insurance industry. Hastings would in effect be investment number one in this. To give effect to this plan, RMI proposed that it raise about R6.5-billion via a rights offer. 

“Then Sampo came to us with their offer and that changed the picture,” says Bosman. Even then, RMI did not abandon its active investment idea and spent time exploring opportunities within the short-term insurance industry. 

“But we could find nothing at the right price, right quality, that was available within a suitable time frame,” he says.  

This coincided with the realisation that OUTsurance was a mature company with effective governance reporting, not to mention good growth prospects. 

“In its own right, OUTsurance is a growing short-term insurance group operating across multiple geographies. It could, in time, drive international expansion independently, should attractive opportunities arise.”

Cementing this was the fact that RMI was trading at a premium to OUTsurance’s net asset value, a clear signal that the market liked the asset. 

In another clear signal, RMI’s share price rose 8.43% to R49.27 on Wednesday, following the Sens announcement.

The announcement that OUTsurance will be directly listed coincided with – and was overshadowed by – the release of RMI’s interim results to end December 2021.

These results were somewhat mixed. The distorted 2020 base meant that many of the group’s underperforming segments in 2020 showed strong recoveries in 2021, while those that did well during the lockdown periods of 2020 experienced a tough 2021, says Victor Mupunga, Old Mutual Wealth Private Clients Securities senior analyst. 

In aggregate, normalised earnings for the group were down 6% to R1.9-billion. OUTsurance was the laggard due to adverse weather conditions and a normalisation of claims trends as consumers returned to previous travel habits. 

MMH was the standout performer as earnings increased 36% on the back of strong market returns.  Lower interest rates, which reduced the group’s funding costs, were the other positive performance driver during the period, he says.

On the subject of the unbundling, Mupunga believes the transaction will result in a simpler structure without a holding company and with a higher dividend payout ratio. 

RMI has unlocked significant value for shareholders since it began the process, which Bosman says began in 2017 when management became aware that holding companies were becoming unpopular. 

The process was complicated by the fact that, back in 2017, MMH wasn’t growing and the debt was a headache. And then came Covid-19… 

The listed firm now trades at an almost unheard-of 2% discount to its intrinsic net asset value, having previously traded at about a 30% discount prior to the September announcement. This represents a roughly 28% value unlock. The share price rose from R30.81 to Wednesday’s R49.40, a 38% rise, compared with the increases in the JSE All Share Index of 17% and the Life Insurance Index of 6% over the period.

Through the unbundling, RMI will return value to shareholders of about R33.4-billion (based on the market capitalisation of Discovery and Momentum Metropolitan or R21.83 per share as of 11 March 2022). 

Further, RMI has declared an ordinary and special dividend of R2.54-billion, being 165.5 cents per share. Combined with the unbundling, RMI will be delivering about R36-billion in value to shareholders, or R23.48 per share, representing about 50% of RMI’s share price as of 11 March 2022.

At this point, the future of RMI’s investment in RMI Investment Managers and the AlphaCode portfolio of fintech companies is uncertain. 

“We have time on our hands, and no debt, so we will consider our options,” Bosman says.

The managed transition is expected to be implemented over the next six to 12 months. Further details, including the implementation structure, will be announced shortly. 

This news comes barely a fortnight after PSG announced the unbundling of its listed assets to shareholders and its imminent delisting. Other listed holding companies may well be feeling the pressure. DM/BM