Business

It’s ‘wait and see’ for Discovery

Luke Fraser

 ·18 Mar 2024

The Discovery Group’s normalised profit from operations is expected to see double-digit growth – but it remains to be seen how the group’s headline earnings will swing.

In a voluntary trading update for the six months ending 31 December 2023, the group said that normalised profit should grow by 10% to 15%.

On the other hand, headline earnings (HE) are expected to swing between 3% lower and 2% higher.

Normalised headline earnings (NHE) for the period are expected to increase by between 8% and 13%.

“The difference between the growth in NHE and HE is largely explained by the considerable prior period
fair value gain from the UK interest rate swaption,” the group said.

“The swaption was realised towards the end of the prior financial year and so has no profit impact in the reporting period and consistent with prior reporting, headline earnings are normalised for this.”

The South African Composite saw earnings and new business growth, with Discovery Health’s new business boosted by the take-on of the Sasolmed scheme.

Discovery Bank also showed strong progress across all its metrics.

“Discovery Life’s individual life business delivered strong earnings growth with improving new business margins, while Group Life declined from the prior period’s exceptional performance,” said Discovery.

“Discovery Invest’s performance was robust with revenues and profit benefiting from higher market levels.

“Discovery Insure’s profit recovery was constrained by two severe weather events.”

VitalityHealth (UK Composite) also experienced robust new business growth due to the NHS backlogs and the increased demand for private medical insurance.

“However, there was a concomitant increase in claims experience due to a change in claim patterns in respect of primary care demand. VitalityLife’s earnings benefited significantly from higher interest rates and one-off positive variances.”

Vitality Global also performed strongly over the new reporting period. China’s Ping An Health, in which Discovery owns a 25% stake, also saw new business production exceed expectations.

Financials

Although Discovery said that the switch in accounting methods from IFRS 4 to the new industry-standard IFRS 17 will not affect underlying economic value, solvency levels or cash flows, it does affect its incidence of profit recognition.

Thus, earnings per share are expected to be between 2% lower and 3% higher (between 478.1 cents and 502.5 cents) compared to the restated IFRS 17 Earnings Per Share of 487.9 cents for the prior period (443.1 cents previously reported under IFRS 4).

Headline earnings per share are expected to be between 3% lower and 2% higher (between 483.4 cents and 508.4 cents) compared to the restated IFRS 17 HEPS of 498.4 cents for the prior period (453.6 cents previously reported under IFRS 4).

Discovery will release its interim 2024 financial results on or about Wednesday, 20 March 2024.

Read: The most popular loyalty programmes in South Africa – with a new number one