Investors raise questions as Sanlam buys out rest of Saham
The group spends $1.05bn on remaining shares to advance its 'Cape to Casablanca' footprint
Sanlam’s $1.05bn splurge on the remaining shares in Morocco’s Saham Finances has raised eyebrows in the investor community, even as it gives the insurance group what CEO Ian Kirk calls a "Cape to Casablanca" footprint.
Having bought previous stakes in Saham — 30% in 2016 and 16.6% in 2017 — at hefty price-to-earnings multiples, Sanlam was always going to pay a premium for control. It also hedged payments at an average exchange rate of R13.50/$ over uncertainty relating to the ANC elective conference.
The deal is Africa’s second-largest in financial services, behind Absa’s R18.3bn purchase of Barclays plc’s African operations in June 2013. That deal has since been unwound, as Barclays Africa once again becomes Absa Group.
Analysts are sceptical, questioning whether Sanlam has the management bandwidth to oversee such a large number of businesses. The group will be in 33 African countries, with eyes on Ethiopia, where it already has a local partner, and Egypt.
The deal would make most shareholders "a little uncomfortable", said Warwick Bam, an analyst at Avior Capital Markets.
The price had "not given Sanlam much buffer in terms of managing the performance of the Saham businesses. It will need to be managed well to get the growth, which they have now already paid for." Positively, Saham was a "very solid, well run business", which would provide Sanlam with a diversified earnings mix in time.
The opportunity for control had come sooner than anticipated, spurred by Saham Group’s majority shareholder, Moulay Hafid Elalamy, said Junior Ngulube, CEO of Sanlam Emerging Markets.
Elalamy, Saham Group’s founder, was appointed as Morocco’s minister of trade and industry in April 2017. He is also leading the country’s bid to host the 2026 Fifa World Cup and decided that now was the right time to exit, said Ngulube.
Sanlam would spend about R1.9bn of its own cash on the acquisition. It was still finalising the debt and equity mix that it would use to fund the rest, said group financial director Heinie Werth. The plan was to include its empowerment partner, Ubuntu-Botho Investments, in the deal.
For the year to December, Sanlam posted a 7% increase in operating profit to R8.5bn, with SA accounting for 63% of that.
New business volumes were flat, dragged lower by the group’s largest unit, Sanlam Personal Finance.
Many investors had opted to leave their cash in banks amid economic and political uncertainty in SA, said Kirk.
In SA, the environment for insurance companies was much improved, as an uptick in confidence would lead to consumers investing into retirement annuities and buying more insurance, Bam said.