Given Metropolitan’s strong performance and shareholder returns relative to its competitors over the past two years, there has been little reason for the company to participate in the consolidation experienced in South Africa’s life insurance industry, according to CEO Peter Doyle.
Doyle was speaking with I-Net Bridge following the release of his company’s final results for the year to end-December 2004 on Wednesday, where it announced a 49% rise in core headline earnings per share and a 21% increase in its dividend for the year. The results beat market expectations — a consensus of six investment analysts surveyed by I- Net Bridge had expected the company to report earnings per share of 76 cents and a dividend of 48,5 cents per share.
Addressing the issue of industry consolidation, which has returned to the headlines since Liberty Group announced its bid for Capital Alliance in the latter part of 2004, Doyle confirmed that Metropolitan had not been in potential merger discussions with any other insurers in 2004, although the company had been looking at various possibilities for the past two to three years.
“The reality is that two things are driving the consolidation — excess capital and a lack of growth,” he explained. “For the bigger competitors it has been difficult to increase profitability, but not for Metropolitan. We have been able to reduce our cost structures and we have a good distribution platform — we therefore don’t ‘need’ consolidation like they do.”
He pointed out that, far from suggestions that the group was avoiding consolidation at the expense of its shareholders, Metropolitan had provided the best returns to shareholders out of all of the life insurers in the past two years.
“Two or three years ago the board spent a lot of time discussing industry issues and we have actively looked at opportunities if there was a business rationale,” noted Doyle. “We are still open to opportunities now.”
As South Africa’s fourth largest life insurer (once the Liberty-Capital Alliance deal is finalised), Metropolitan has been outperforming its much larger competitors in most areas of business. Its focus on the fast growing lower-and middle-income segments of the market makes it an attractive target for other companies, and market speculation has centred on a possible bid for the business by Sanlam after talks between the two parties three or four years ago came to nothing.
Earlier, Metropolitan reported a 49% rise in its core headline earnings per share for the year to end-December 2004 to 89 cents from 60 cents a year earlier.
The group’s embedded value per share rose 24% to 1 325 cents from 1 068 cents (before the 100 cent capital reduction), and Metropolitan declared a final dividend of 31,5 cents per share, for a total dividend for the year of 52 cents, representing a 21% improvement on the 43 cents declared in 2003.
Metropolitan’s shares were up 2,7% or 30 cents in early trade on Wednesday, last quoted on the JSE Securities Exchange at R11,45 from R11,30 at Tuesday’s close. –
I-Net Bridge