Alexander Forbes writes down businesses by R1.2bn due to Covid-19

Pension fund administrator Alexander Forbes has written down its businesses by about R1.2bn after considering the effect Covid-19 will have on cash generation.

The group, which has a market capitalisation of about R5.2bn, said it has conducted a risk assessment of the coronavirus pandemic, including various scenarios that would hit profit and revenue.

The pandemic has shuttered businesses and brought entire sectors of the SA economy to a halt, with many businesses bracing for the effect on consumer spending, as well as reduced savings rates.

Alexander Forbes said in a trading update on Wednesday that it expects headline earnings per share (HEPS) to fall by between 16% and 23% in the year to end-March, from 44.2c previously.

HEPS strip out one-off items, and will not include the profits the group will receive from the disposal of short-term insurance business AFI to Momentum Metropolitan Holdings. Alexander Forbes sold the business for about R2bn, saying on Wednesday that it would recognise an R861m profit on the sale.

In afternoon trade on Wednesday, the group’s share price was up 2.21% to R3.70, having fallen by a third so far in 2020.

David Talpert, analyst for speciality finance at Avior Capital Markets said there was no real operational impact from the goodwill impairment. “The goodwill is related to when a private equity consortium acquired Alexander Forbes in 2007. Therefore it’s a non-cash transaction and does not reflect poor capital allocation by the current management team.” 

Although the writedown doesn’t affect Alexander Forbes’ plan to acquire new business, an ambition it set out late last year, the company is likely to shift its focus to operations.

“Despite having net cash, I think they are probably going to stay away from acquisitions and focus on operational efficiencies,” Talpert said. “Their focus is really now on their core business, which is administration, consulting and asset management. The key focus area at the moment is to get their cost base right.”

Talpert added that asset managers are under pressure due to lower market levels, a shrinking savings pool and the weak economy, saying it is too early to tell what the impact of the coronavirus will be on Alexander Forbes.

“The results are to March, so it’s probably too early to see the impact from Covid-19,” said Talpert. “The next set of results will give us more insight into how bad the economic fallout will be.” 

Update: May 27 2020 
This article has been updated with analyst comment.

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