Johannesburg - Specialised financial services group, Alexander Forbes, reported a 143 percent rise in profit after tax to R874 million, with rising unemployment in South Africa reducing revenue.
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The group said yesterday that the results for the year to end March were commendable given the country’s business environment of low growth. Headline earnings per share surged 82 percent to 58.1c and operating profit grew by 6 percent to R1.2 billion.
However, the group said the rise of the country’s unemployment rate to 26.7 percent almost undermined its earnings.
“The increase in unemployment has a strong correlation with cash being withdrawn from pension savings and member numbers in the retirement funds administered by the group,” acting chief executive Deon Viljoen said.
Profit from operations rose 12 percent to R383m in the retail cluster as the financial services, Investment Solutions, and short-term insurance businesses all posted profit growth, while profit from operations in the group’s institutional cluster, which serves corporate, fell 9 percent to R467m.
Nico Smuts, an analyst at 36ONE Asset Management, said the results were probably in line with expectations as the share price moved little after the announcement. “This is largely driven by a few accounting anomalies, as well as the once-off listing costs included in the 2015 financial year.”
He said the 5 percent growth in normalised headline earnings per share from continued operations gave a more accurate picture of the underlying performance of the business.
Smuts said the core business faced multiple headwinds over the last year. Going forwards, he said competition was intensifying in the institutional space and it would be difficult for them to grow market share from here. “Against this backdrop the company has in recent years shifted its strategic focus towards the retail business, where its market share is much lower,” he said.
Interest bill
Nolwandle Mthombeni, an analyst at Mergence Investment Managers, said prior to its listing in 2014, Alexander Forbes was a loss-making entity due to its heavy interest bill and associated non-tax deductibility. “The company underwent restructuring which… significantly reduced its debt, making it profitable.”
She said: “In the prior financial year the costs associated with the restructuring and listing depressed earnings, so the 82 percent headline earnings per share growth is inflated due to a low base.”
The financial services business and investment solutions continue to face headwinds with job growth being muted and equity markets delivering low returns. These are macro-economic factors that the performance of these segments is highly geared to. The group was able to achieve good growth in both its insurance business and international operations as it takes advantage of better growth prospects in other economic environments.
The group declared a dividend of 22c per share, up 47 percent when compared with the six-month dividend for September.
Alexander Forbes shares gained 2.04 percent on the JSE yesterday to close at R6.99.
BUSINESS REPORT