INLSA

Cape Town - 111103 - Old Mutual's Chief Executive Officer, Julian Roberts, speaks to the Business Report. Reporter: Londiwe Picture: David Ritchie

Renee Bonorchis

Old Mutual may pay a special dividend of at least 15p (R1.93) a share and its shares could rise next year following the sale of Nordic units, according to Risto Ketola, an analyst at Standard Bank Group’s SBG Securities.

“We argue for a 15p, or R2, special dividend and that remains our view,” Ketola said in response to questions put to him on Wednesday.

He commented following the sale of Old Mutual’s Nordic unit to Skandia Liv for £2.1 billion and its disposal of the Finnish unit of Skandia Life Assurance to Finland’s banking co-operative, the OP-Pohjola Group, for an undisclosed amount.

Ketola increased his 12-month price target to £1.90, with the insurer having traded at £1.11 last Friday, the day before the Skandia Liv deal was announced. The London-listed shares of the third-biggest UK insurer rose 3.1 percent to £1.342 at 3.45pm in London yesterday. In Johannesburg, Old Mutual’s shares rose 1.7 percent to close at R17.10.

Of seven analysts surveyed by Bloomberg, the mean estimate for a special dividend was more than 17p, with the highest forecast almost 27p. Old Mutual’s price could rise to £2 a share, according to the highest of the 12-month price targets by seven analysts in Bloomberg data. The mean price estimate is £1.62, a level the insurer has not seen for four years.

Old Mutual would update the market on the special dividend in a circular in February, spokesman William Baldwin-Charles said yesterday.

In the past decade, the 166-year old company has opened businesses in the UK, the US, the Nordic region and Asia. Ventures in the US and the Nordic region have since been sold, while Asian expansion has been curtailed.

Julian Roberts, who was promoted from chief financial officer to chief executive in 2008, aims for the group to pay off £1.5bn of debt and achieve a return on equity of 15 percent at its units by the end of next year.

Analysts are divided on the size of the special dividend because Old Mutual may have the opportunity to increase its debt repayments following the sales announced this month.

Morgan Stanley analysts expect Old Mutual to increase repayments by a further £500 million to a total of £2bn while Ketola said the insurer was likely to retain debt.

Old Mutual would reassess its debt repayment plan, Baldwin-Charles said. Markets were “uncertain”, he added, echoing institutions like Swiss Life Holding and Aviva, the UK’s second-biggest insurer by market value.

A special dividend will help Old Mutual’s black shareholders in South Africa pay down their own debt, according to Ketola.

The insurer financed the sale of a stake in the company to a group of black investors in 2005 as part of black economic empowerment initiatives.

A decrease in Old Mutual’s debt obligations outside South Africa and excess cash might also prompt further action, analysts said. – Bloomberg