Momentum warns of tough outlook as market volatility costs it R1.2bn
The effects of Covid-19 on global financial markets have pushed the group into a third-quarter loss
Financial services group Momentum Metropolitan Holdings says the battering global markets has taken from the Covid-19 pandemic cost it R1.2bn and pushed the group into a loss in its third quarter, with the group bracing for further pressure on SA consumers in the months ahead.
The effect of the pandemic on global markets offset a good operational performance, with the group saying it saw a normalised headline loss of R284m in the quarter to end-March.
Normalised headline earnings had risen 10% to R1.8bn in the group’s six months to end-December. Normalised headline earnings is the group’s preferred profit measure and makes adjustments, including for investments into the company’s own securities on behalf of clients. Headline earnings is a widely used profit measure in SA, stripping out exceptional or one-off items.
Momentum said on Thursday that it does not foresee a rapid economic recovery, and expects a reduction in new business during its 2021 year. Financial markets are also not expected to recover losses incurred in March in the immediate future, the group said.
“While the health implications of the coronavirus remain uncertain, the impact of the lockdown regulations on the economy is becoming increasingly tangible,” Momentum said.
The Momentum Metropolitan Africa division took the largest hit, with normalised headline earnings tumbling 80% to R41m as a result of dampened investment sentiment caused by low returns on investment since the start of March.
Momentum Investments dropped 28% to R273m, although this was offset by good new-business volumes from the Wealth Investments side, the company said.
Market conditions in March hampered assets under management in its non-covered business, which declined 12% compared to the prior period. It recorded positive net flows on the Momentum Wealth investment platform.
Life products from Momentum and Metropolitan Life saw reductions of 33% to R448m, and 35% to R310m, respectively.
Shares in the company were 5.91% lower in early trade on the JSE. Its share price has fallen 23% since the start of the year, compared with direct competitor Old Mutual and Sanlam, which have seen their share prices falling 35% and 24%, respectively, over the same period.
Warwick Bam, head of research at Avior Capital Markets, said without the severe financial markets impact on Momentum, the company reported positive figures, adding that it is unlikely Momentum will experience any liquidity or solvency issues.
“Those are very respectable numbers and management has worked very hard at stabilising the business as part of the re-set and grow strategy,” Bam said. “Unfortunately, the outlook is still very uncertain as to what the secondary economic impact of the lockdowns will mean for lapses [and] profitability, especially when it comes to credit defaults on the assets side [and] property exposure.”
Update and Correction: May 21 2020
An earlier version of this article referred to Momentum’s first quarter when it was, in fact, its third quarter. This story has been updated with comment and financial information throughout.