Alexander Forbes core earnings up, sees more buys AlexForbes core earnings up, sees more buys

South African financial services firm Alexander Forbes drew strength from its diverse business interests to post earnings in line with expectations on Monday, although the mix of contributions was not as forecast.

The world’s eighth largest risk and financial services provider said it would still cautiously eye possible buys after an aggressive drive to build up its overseas operations, particularly in the United Kingdom in the past few years.

“We see a combination of organic growth in our core businesses as well as continued cautious acquisition,” said Deputy Chief Executive Rael Gordon. Gordon will take over from CEO Graeme Kerrigan at the start of next year.

Analysts said that while the headline numbers came in as forecast, the make-up of earnings was not quite as expected.

“I was expecting a little bit less from Africa, a little bit more from the UK,” said Wilhelm Nauta, financial services analyst at local brokerage Barnard Jacobs Mellet.

“Alexander Forbes are fortunate in that they’ve got a nice mix of different businesses so that makes for a very nice set of results even when some businesses don’t perform so well.”

AlexForbes said headline earnings per share rose eight percent in the six months to September 30, 2002 to 98,8 cents from 91,3 cents in the same period last year. Headline earnings strip out exceptional items and their tax effects, but include unrealised currency gains.

Its share slipped 1,5% to R13,25 by 1100 GMT in a flat market.

A large unrealised currency gain of R57-million in the first six months of 2001 against an eight-million rand gain this year was responsible for the relatively low increase in headline earnings for the period under review.

A number of South African companies with foreign operations benefited from a sharp fall in the value of the rand last year.

AlexForbes said attributable core headline profits jumped 23% to R337-million from R275-million.
Core headline earnings—excluding non-trading gains and losses—leapt 22% per share to 97,1 cents from 79,7 cents.

As expected, the firm’s risk services divisions performed well in the period—benefiting from a rise in insurance premiums following September 11 attacks on the United States.

But the contribution from associates decreased as a result of a decline in profitability of the healthcare administration businesses of Medscheme and Thebe Risk & Benefits.

Analysts said they were also disappointed by the performance of the firm’s European financial services business, where revenue fell 56% in the period to R11-million. AlexForbes said its CTC bureau and the software businesses of Financial Services incurred losses.

The company said it expected satisfactory real growth in core headline earnings for the full year.

AlexForbes has said it planned to sell a 30% stake in the business to a black-led firm as part of industry-wide moves to open up financial services to people who were excluded from the mainstream economy under apartheid.

On Monday, the firm said the agreement to sell the stake had “been of significant strategic benefit to the positioning of the group in South Africa and has already impacted on opportunities available to the group.” - Reuters

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