Leading shares are heading lower as investors take profits after recent gains, but an expection is Old Mutual.
The investment group has jumped 14.6p or 8% to 194.3p following weekend reports it could be preparing a £9bn break-up. Sky News said it was working on a plan to split into standalone companies comprising its stake in South Africa’s Nedbank, its UK wealth business, its South African emerging markets division and its institutional asset management operations.
Two private equity firms were already said to have tabled offers for Old Mutual Wealth.
In response Old Mutual has said it was conducting a strategic review, and said all options were being considered. But no decision had yet been made. It will provide an update with Friday’s figures. Analyst Eamonn Flanagan at Shore Capital said:
Old Mutual Wealth has developed a vertically integrated model in the UK with the Skandia platform sitting alongside distributor Intrinsic and the asset management business OMGI, together with its in-house manufacturer. Total asset amounted to £98.7bn at the end of November 2015 (current figure is likely to be lower) with 2015 operating profits expected to amount to around £265m.
With a fair wind this business could be worth around 15 times 2015 full year earnings which would imply a figure of around £3bn, equivalent to around 3% of funds. The group’s current market capitalisation of £8.9bn compares to our adjusted group value of around £10bn, within which Old Mutual Wealth accounts for around £2.0bn…hence, a disposal/demerger at this value could add around £1bn to this figure, equivalent to around 20p per share.
We believe that such a disposal or demerger of Old Mutual Wealth is a distinct possibility. The interaction with the South African life and banking operations is pretty limited and, indeed, probably introduces the conglomerate discount that the stock has traded on for quite a while. In addition, we remind readers of the group’s previous record of such radical moves, such as the sale of Skandia’s Scandinavian business a few years ago, and the subsequent return of capital.
Mike van Dulken, head of research at Accendo Markets, said:
Investors will be hoping that it’s a case of 2+2=5 with the individual assets of the company being worth more on a stand-alone basis than whilst held together.
Some might argue the timing is rather fortuitous just days before results, getting the shares back to the 200p mark last traded in early December. It also closes the December gap down when South Africa-exposed stocks were hurt by the ousting of the country’s finance minister, stoking scepticism among foreign investors.
However, Barclays announcement that it is exiting Africa implies interest from suitors for operations in the geography and potential for transactions while suggestions are that the wealth division is being eyed by a pair of buyout firms.
Meanwhile JP Morgan Cazenove has issued an underweight rating on equities after the recent rebound, but said the UK was still its top regional pick despite the worries about Brexit.
Overall with mining shares lower, despite China saying over the weekend it expected growth of 6.5% to 7%, the FTSE 100 is down 34.15 points 6165.28.
Glencore is down 6.3p at 153.7p and Anglo American is 22.9p lower at 569.1p. Randgold Resources has dropped 290p to £63.25 as Morgan Stanley moved from overweight to equal weight, while Fresnillo has fallen 21p to 938p after the bank cut its rating from equal weight to underweight. It said:
With Randgold’s share price up 53% year to date and Fresnillo up 35% it’s time to take profits. Both stocks look fully valued and imply metal prices that are far above spot leaving their risk-rewards skewed to the downside.
InterContinental Hotels has fallen after Citigroup cut its rating from neutral to sell, saying a slowing global economy means a sharp recovery in the sector’s revenue per available room was unlikely.
