Alexander Forbes: lean money machine?
Market indifference towards Alex Forbes is changing under a new CEO, and the prospect of chunkier capital returns
A leaner, capital-light business is steps away for Alexander Forbes, now that it has sold its short-term insurance business to Momentum.
The group, which has seesawed between strategies after acrimonious management changes and mass managerial departures, recently offloaded the insurance unit as part of a plan to retreat from retail operations.
"We are all about winning credibility back in the market now," says CEO Dawie de Villiers, who hopes that clinching the short-term insurance sale will prove to investors that the new management team can deliver on its promises.
That strategy is in sharp contrast to axed CEO Andrew Darfoor’s Ambition 2022, which sought to expand the Alexander Forbes retail business. Instead, SA’s largest pension funds administrator now wants to focus on its core business of pension fund administration, asset management and consulting.
De Villiers has been at Alexander Forbes for less than a year and CFO Bruce Bydawell has been in his role for four months. The two are still trying to steady the ship after an exodus of executives following Darfoor’s sacking in September 2018.
Life insurance and the group risk businesses are next, according to De Villiers, whose aim is to return capital to shareholders and hopefully narrow the company’s share price discount.
Lastly, he plans to sell all subscale operations outside SA.
Selling short-term insurance, says De Villiers "is by far the biggest step in the right direction".
It will, however, have a profound impact on Alexander Forbes’s size: the short-term insurance business accounted for 20% of annual revenues and roughly 20% of profit.
On the other hand, its remaining insurance businesses, as well as life and group risk, make up just 2.4% of the pension fund administrator’s operating income.
Alexander Forbes expects to wrap up the sale of these divisions before the end of this financial year.
This means Alexander Forbes will just about halve the regulatory capital it currently needs to keep on hand to demonstrate its financial soundness.
What is De Villiers aiming to do with all this free capital? He wants to buy pension fund administration businesses and consultants to build more scale in its employee benefits and pension fund administration value chain.
Alexander Forbes has staged something of a turnaround since thudding to a low of R4.26 in February. Currently at just over R5.50, it’s nonetheless half its February 2015 peak of R10.80, touched shortly after its return to the JSE in 2014.
But is the recent run an indication that the market is starting to trust Alexander Forbes again, and buy into its new plan — or simply a correction after a disastrous year?
Probably both. Karl Gevers, head of research at Benguela Global Fund Managers, says the sale "shows that management is taking action".
However, says Gevers, "the environment is tough, with tough competition in the employee benefits space. Forbes is a large player, and they will have to protect their existing client base, navigate an increasingly competitive fee environment and, after all, grow the businesses."
De Villiers says the efficiencies Alexander Forbes is creating by refocusing its business and upgrading its IT systems will help the company make money, even as the economy shrinks and the number of unemployed people rises.
"Having gone through turbulent times … we can cope with these employment numbers. We’ve streamlined our business to make money at the level where employment and growth numbers are now," says De Villiers. He adds that if growth returns and employment numbers improve, Alexander Forbes will be in a very good position.