Sanlam looks East for targets

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Sanlam chief executive Johan van Zyl says if the firms R4 billion in surplus capital is not used by the end of the financial year, the insurer will look at paying special dividends instead of buying back shares as the company usually does. Photo: Simphiwe Mbokazi

Londiwe Buthelezi

With R4 billion of surplus capital it needs to invest this year, Sanlam has revealed that it has been talking to businesses in Malaysia and Indonesia about possible acquisitions, but nothing has been finalised.

Sanlam chief executive Johan van Zyl said yesterday that the company had a pipeline of products that it wanted to introduce to these markets but management was still searching for the best deal.

“It’s not only about finding a deal but it’s finding a good deal that can carry us to the future and that takes time,” he said.

Sanlam had R4bn of excess capital at the end of June which it said would be utilised in new investments. If the money is not used by the end of the financial year, the insurer will look at paying special dividends instead of buying back shares as it usually does.

Adrian Cloete, a portfolio manager at Cadiz Asset management, said if Sanlam did not invest this surplus soon, it would dilute the firm’s returns. But he said being a strategic team, management should have a better idea where it would invest it when the financial year ended in December.

Van Zyl said the group would also expand its entry-level footprint in South Africa because it was showing good growth potential.

Sanlam would spend R2bn on the Shriram transaction, in which it would acquire a 26 percent stake in this Indian life insurer. The transaction is close to completion. The Asian expansion should be an interesting move for Sanlam as the region has one of the fastest-growing economies.

In another move, which Sanlam said was a defence strategy, the company is looking to add a health product, which it has not yet determined.

Van Zyl said it was important to have this business because when customers approached retirement age, health became a priority.

“I think that there is a lot that we can gain by having a health product in our stable. We don’t have to own it but we have to be associated with it.”

Van Zyl said the insurer was not looking to compete on the level of medical schemes, and even if this business did not make money, it would be a tool to retain customers.

Sanlam increased new business volumes by 11 percent to R61bn in the six months to June. This increased the net value of new covered business by 38 percent to R491 million.

The group had net fund inflows of R10bn. Its equity value was R32.93 a share, resulting in annualised return on group equity value a share of 18.4 percent.

Headline earnings rose by 9 percent to R2.4bn. Normalised diluted headline earnings a share increased by 16 percent to R1.25, while net operating profit a share jumped by 14 percent.

Sanlam Personal Finance’s contribution to the group’s operating profit was up 19 percent. The contribution from Sanlam Emerging Markets rose by 56 percent. Sanlam Investments was up 10 percent.

Santam’s contribution, on the other hand, was down 14 percent from the previous comparable period. Santam’s underwriting margin was down to 6.1 percent from 8.4 percent when it reported its interim results last week.

Its net insurance income decreased to R674m, compared with R787m in 2011, due to the difficult trading environment faced by short-term insurers.

But Van Zyl said that this was a sterling set of results if they were not compared to the 2011 high base.

Cloete said that Sanlam’s annualised return on embedded value, the equity value and the value of new business were all above market expectations and thus this was an excellent set of results.

He said the business had been well-managed since Van Zyl took over as chief executive 10 years ago and that was why its share price had done exceptionally well.

He said: “I think that is well-deserved because management has turned this business around and really diversified it over the last eight years.”

Sanlam moved from its traditional South African middle-income market and now has a diversified portfolio of affluent, low-income and offshore businesses.

Shares gained 1.10 percent to R37.66 on the JSE yesterday.


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