Shaun Harris
Pity those million-odd Old Mutual policyholders-turned-shareholders who decided to sell their free shares ahead of Monday’s listing in Johannesburg and London. At the end of day one the value of the shares on the Johannesburg Stock Exchange(JSE), listed at R11,25, had gained more than 16% to close at R13,10.
Tuesday’s close at R13 was as remarkable. The strong surge seen on listing day would normally have profit-taking pushing the price of shares down, so to only lose 10c after such a successful debut seems to show substantial strength in Old Mutual’s shareholding structure.
About 20% of the equity in South Africa’s largest financial services group is estimated to be in the hands of foreign shareholders, and not only the index funds. They will pile in during September when Old Mutual is expected to join the FTSE 100. The current foreign shareholding is understood to be spread among solid institutional investors – not the types to go for a quick buck.
That should lend some stability to Old Mutual’s share price in the months ahead, good news for the two million or so free shareholders who have hung on.
Rough calculations show Old Mutual has an embedded value – the total value of free reserves, contingency and other reserves as well as the discounted value of future profits from existing business – of between R16,50 and R17 a share. It would be crazy to sell the share below this over the short term.
More important, though, is Old Mutual’s appraisal value, which adds goodwill to the embedded value. This is about R18,50, the truest reflection of the value of the share. With the financial services sector being re- rated on the JSE, even short-term holders should try not to exit below this price.