FINANCIAL services group Fedsure unveiled surprisingly poor annual results this week, casting a shadow over prospects for Investec bank, which is buying most of its business.
Fedsure said its attributable earnings for the year ended December 31 leaped to R2.75bn ($350m) from R617m. This included a one-time profit of R4.01bn from the R4.6bn sale of its insurance and financial services to Investec.
It also took into account a R1.3bn writedown in the value of its free life insurance assets – a measure of the real value of its business mainstay – which was far worse than analysts had expected. “These are the most terrible results,” SG Securities analyst Greg Goeller said. The asset writedown suggested that Investec may need to inject further capital into the company, and its earnings would probably be hit by the acquisition, he said.
“I think that these results are going to result in further negative sentiment for the shares of both companies,” he said.
Fedsure’s results were released after the Johannesburg bourse closed. Its share, which has lost about 64% of its value since the start of 2000, closed down 3.7% at R19.50, underperforming a 1.1% fall in its sector.
Investec closed up 1.93% at R211, but its share has lost 23% of its value since the end of January. Fedsure’s earnings figure included operating profit of R467m, which was down by 24% from the 1999 level.
Concern has been mounting over Investec’s acquisition of Fedsure, due to the insurer’s problems and a perceived lack of synergies between the two.
The price has been cut twice since the deal was agreed in November, and now stands at 11 Investec shares for each 100 of Fedsure’s, plus R250m in cash.
Investec has applied for a coveted primary listing in London. Some analysts say the bank is keen to grow to meet the government’s demand that companies moving offshore qualify for a listing in top indices, such as the FTSE 100.
Investec’s takeover of Fedsure’s financial and insurance business would create a global fund manager with R540bn of assets under management, with an increase of R35bn locally from the deal, Chief Executive Stephen Koseff said.
“We remain confident that acquiring those portions of Fedsure that will bolster our critical mass and enhance economies of scale in key areas of activities, will add considerably to shareholder value,” he said. – Reuters
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