Market appreciates Old Mutual as its share price adjusts for Nedbank separation
The final hurdle is cleared in splitting business into four separate units
Insurance giant Old Mutual has cleared the final hurdle in splitting its business into four units.
The market reacted favourably to Old Mutual’s last step in its managed separation process, with the insurer’s share price rising 2.2% when adjusted for the Nedbank price on Wednesday.
Old Mutual will complete the unbundling of its 52% stake in Nedbank to shareholders on Monday. About R43.2bn will be distributed to shareholders through the Nedbank shares, which equates to almost a third of the insurer’s market capitalisation.
However, Old Mutual will retain a 19.9% minority stake in Nedbank.
Although the company’s share price fell 26% at face value to R74.21 on Wednesday morning when it started trading without the Nedbank share entitlement, Karl Gevers, head of research at Benguela Global Fund Managers, said the adjusted price reflected positive market sentiment.
“The market is appreciating Old Mutual. We believe it is attractively priced currently.”
Warwick Bam, head of research at Avior Capital Markets, said Old Mutual was trading better than expected after the Nedbank price separation.
“The market has been sceptical of the managed separation due to the complexity involved and the extent of changes to the group structure. Uncertainty regarding the natural shift in shareholders after the Quilter and Nedbank unbundling has concerned investors. However, the shareholders will settle within the coming weeks, providing investors with more clarity on the valuation of the core operations,” he said.
The distribution of Nedbank shares to shareholders will take place on Monday, October 15. However, Tuesday was the last day on which Old Mutual’s shares entitled buyers to Nedbank shares. For every 100 Old Mutual shares held, shareholders will receive 3.21176 Nedbank shares on Monday. Shares bought from Wednesday were no longer entitled to these Nedbank shares. This explained the 26% decline.
Old Mutual began its managed separation process in 2016 to split the four businesses that made up made up the group and independently list the two that weren’t yet listed. It sold most of its 50.8% stake in the US asset manager in 2017 before rebranding it as Brightsphere Investment Group in March this year. In June, the insurer listed its UK wealth management business as Quilter and listed the African and emerging market business as Old Mutual Limited on the JSE.
Nedbank was the biggest driver to Old Mutual’s 33% increase in income from associates in the first half of 2018. When its earnings contribution was adjusted for a 19.9% stake, Old Mutual’s income statement shows that the bank still contributed R1.3bn to the group’s headline earnings.
Bam said with the final step in the managed separation concluded, Old Mutual's management can now focus its attention on maximising operational profit.