SHARE TO WATCH: Quilter plc is now well worth a second look

Most South African investors holding Quilter plc shares got them in the unbundling of Old Mutual in middle of 2018. Photo: Timothy Bernard/African News Agency (ANA)

Most South African investors holding Quilter plc shares got them in the unbundling of Old Mutual in middle of 2018. Photo: Timothy Bernard/African News Agency (ANA)

Published Aug 12, 2019

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JOHANNESBURG – Most South African investors holding Quilter plc shares got them in the unbundling of Old Mutual in middle of 2018. 

Most investors don't know what to do with the shares and by default hang on to them. In essence, it is the UK ventures of Old Mutual, listed separately and distributed to shareholders during their unbundling and restructuring. They are listed in London and Johannesburg.  

Last week, Quilter reported results for the six months to June 2019. Like previous results, it is difficult to assess precisely what is going on at the company and whether it is worth holding on to or buying even more. Once again, they had once-off items and some corporate activity. 

Quilter showed a 5 percent increase in adjusted profit before tax of £115 million (R2.1 billion) and an interim dividend of 1.7 pence (R27 cents) per share. 

They posted a loss of £32m and a 0.9 pence headline loss per share, due to a policyholder tax charge which the company will reverse once it's claimed this from policyholders. 

This policyholder tax was merely a disclosure issue and distorted their headline earnings figures, which are used to measure most SA companies’ performance and calculate valuation measures such as price-earnings ratios. 

The adjusted profit before tax is a more accurate figure to use. 

According to chief executive Paul Feeney, Quilter experienced £600m in outflows from clients who followed a small group of investment managers who resigned from Quilter in 2018. It also lost £200m of investments when some institutional investors moved to other wealth managers. 

Feeney said he expected outflows to continue for another two to three quarters as some clients might still follow the managers who left. According to Feeney, these are exceptional outflows. 

What was of more importance is that Quilter managed to attract new business to the value of £6bn and increased assets under management and administration by 8 percent to £118.4bn.

Quilter announced the sale of its life and pensions division, Quilter Life Assurance, to UK life insurance consolidator ReAssure, owned by global reinsurance company Swiss Re. 

ReAssure is a highly regarded manager of closed-book assets and has the experience to deliver continued high-quality investment and administration services to clients of Quilter Life Assurance. 

The sale will make Quilter a more focused wealth management business, and they are in the final stages of their wealth platform going live. 

After the sale, the company was aiming to return higher shareholder value than the 6 to 8 percent it delivered in its first year when special dividends paid in September are included. 

Quilter experienced a 15 percent rise in costs but this, and the massive outflow of clients’ funds in the first half of 2019, are temporary setbacks. Their transition to an advice-led wealth management firm will see it return more value to shareholders in the coming years.

If South African companies listed on the JSE make you nervous in the light of continued weak economic growth and political turmoil, Quilter might be worth a second look.

Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. Views are of the author and not necessarily the general view of the entire PSG entity. Quilter shares are held on behalf of clients.

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