JOHANNESBURG - Sanlam has set its sights on Ethiopia and Egypt as part of an expansion strategy that will see the financial services group expand its footprint to 44 countries in Africa, India, Malaysia, the UK and Australia.
Sanlam chief executive Ian Kirk told Business Report this week that the group wanted to use its strategy to consolidate its market position on the continent. He said Sanlam planned to enter Ethiopia by 2021 and had already identified a partner in the country.
“We will continue to adapt to situations and we want to retain our position as the go-to financial services provider for the market because this has served us well.”
Ethiopia's 100 million population is predominantly young and has catapulted the country into one of the fastest non-oil-producing economies on the continent since the mid-2000s.
The International Monetary Fund has said that Egypt's gross domestic growth would reach 4.5percent this year and accelerate to around 6percent in the medium term.
Aeon Investment Management chief investment officer Asief Mohamed said the group’s planned foray into Ethiopia and Egypt was based on potential opportunities in the two counties.
“Sanlam has a stated strategy of expanding into emerging markets. Egypt and Ethiopia are fairly big emerging market opportunities for Sanlam,” Mohamed said.
Earlier this year, Sanlam announced that it would buy the rest of Saham Finances in a deal worth $1billion (R12.74bn) - its largest deal to date. The group and its subsidiary Santam first acquired a 30percent stake in Saham in 2016, and last year purchased a further 16.63percent stake. The Morocco-based Saham has operations in 26 countries across Africa and the Middle East.
The Saham deal, which is expected to be effective in the second half of the year, will entrench Sanlam’s exposure to 34 countries in Africa.
Kirk, who has been at the helm since 2015, said the deal would allow Sanlam to deepen its direct presence in North Africa as well as Francophone and Lusophone countries on the continent.
Mohamed, however, said the deal was underwhelming.
“The jury is still out on the Saham acquisition. It appears that a full price was paid for Saham. I am sceptical that the investment in Saham will earn returns well above its cost of capital over the long-term.”
Jordan Weir, trader at BayHill Capital said Saham complemented Sanlam’s business relatively well.
Weir said it would, however, take time for the businesses to be streamlined and the partnership to bear fruit in a few years.
Challenges
“Sanlam does still present a reasonable case for investors, but more so over the long run. Its more aggressive step into African territory needs to be taken with a long-term view in mind, based on various challenges seen in setting up and advancing operations within Africa,” Weir said.
Sanlam, now in its centenary year, reported a net result from financial services per share as up by 11percent in the first four months of 2018, while normalised headline earnings per share went up 5percent. New business volumes declined by 3percent to R69bn for the four months ended April 30.
Kirk said the group would continue to focus on new and bolt-on transactions as well as expansion instead of wholesale changes to its strategy.
“We highlighted before that our strategy is by no means unique, but that our ability to execute has set us apart.”