Old Mutual Ltd.\u2019s homecoming may get even rockier next year as an ongoing battle with its former head risks distracting the South African insurer from handling weak economic growth and rising competition.<\/p>\n
The firm will end 2019 still sparring with ex-Chief Executive Officer Peter Moyo. The dispute has been in court since June, about a year after Old Mutual moved its listing back to Johannesburg.<\/p>\n
That return — celebrated with Moyo and Chairman Trevor Manuel parading the city\u2019s streets — reversed a two-decade long expansion that took the firm from London, New York and Beijing, to focus on Africa.<\/p>\n
\u201cThey want to be pan-African and there are going to be opportunities, but I am not sure they\u2019re going to be in the right frame of mind to capitalize on those,\u201d said Warwick Bam, head of research at Avior Capital Markets. \u201cThat\u2019s what everyone is concerned about — the internal disruption.\u201d<\/p>\n
Old Mutual is struggling to grow sales and operating earnings amid tepid capital markets, a moribund South African economy and the worst Zimbabwe crisis in 10 years. Rivals, meanwhile, are moving ahead.<\/p>\n
Liberty Holdings Ltd. and Momentum Metropolitan Holdings Ltd. reorganised their businesses to cope with the downturn, while Sanlam Ltd. sealed a $1 billion deal that made it Africa\u2019s No. 1 financial-services firm outside of banking.<\/p>\n
Old Mutual\u2019s shares have slumped 13% since the company said in May that it had suspended Moyo, making it the second-worst performer on the five-member FTSE\/JSE Africa Life Assurance Index. The stock hit a record low on Sept. 3.<\/p>\n
Still, the dispute shouldn\u2019t weigh too much on the 174-year-old company\u2019s prospects, according to Renier de Bruyn, an investment analyst at Sanlam Private Wealth in Cape Town, who says the stock offers good value and Old Mutual remains a leading provider of funeral cover in South Africa\u2019s mass-market segment.<\/p>\n
These services aren\u2019t risk-free though. Old Mutual\u2019s retail customers have less to spend on the back of rising utility bills and taxes and are being hammered by the country\u2019s persistently high jobless rate.<\/p>\n
Such headwinds open a gap for new market entrants as consumers shop for better pricing. Capitec Bank Ltd. and Sanlam are seeking to take advantage of this through a partnership that has seen them sign on tens of thousands new clients monthly.<\/p>\n
Avior\u2019s Bam, who has an outperform rating on Old Mutual, also sees value at current levels.<\/p>\n
While Old Mutual\u2019s distribution is a key asset, this can \u201cbe eroded if management\u2019s attention is distracted or if they have less bandwidth because they have to deal with other noise,\u201d he said. \u201cSuccession planning and depth of management are the main concerns as to why nobody is willing to have strong convictions over the growth in Old Mutual.\u201d<\/p>\n
Interim CEO Iain Williamson said management continued to execute and make progress on strategy despite the challenging external environment.<\/p>\n
\u201cWhile it would be disingenuous to suggest that the litigation initiated by our former CEO, Peter Moyo, has not had an impact on the organisation, our teams are focused on their priorities and our operations continue uninterrupted by the ongoing litigation,\u201d he said.<\/p>\n
Rest of Africa<\/strong><\/p>\n Old Mutual\u2019s exposure to the rest of Africa, where it has operations in 13 countries, isn\u2019t pain free either. After turning around its East African business, the company is still restructuring its West African unit to reduce costs, and has had to exclude Zimbabwe from its key financial metrics because of hyper-inflation.<\/p>\n For now, Old Mutual\u2019s growth ambitions aren\u2019t a priority for investors as long as the management dispute persists, according to Bradley Preston, head of listed investments at Mergence Investment Managers.<\/p>\n \u201cThe focus is so much just on resolving the leadership issue there that I don\u2019t know if anything else is really going to feature in investor\u2019s minds,\u201d he said. \u201cIf they can show the operational delivery during this process that may put some of the investor\u2019s concerns at ease, but I just think it needs to be resolved.\u201d<\/p>\n
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