Published Date: 2021-06-10 | Source: INCE|Community | Author: The Finance Ghost
Sanlam has one of the best dividend track records on the JSE. Seriously, do yourself a favour and research their dividend history over the past two decades.
Of course, no business was immune to Covid last year. Not even Sanlam. Still, the group declared a R3 dividend in March this year, down from R3.34 the prior year. At the current share price of R64, Sanlam is on a trailing dividend yield of 4.7%.
Yesterday, Sanlam released an operational update for the four months to April 2021. It's a detailed announcement and only some of the highlights can be discussed here. The market reaction of a 4.18% rally in the share price speaks volumes.
On the subject of volumes, new business volumes were 28% higher than 2020 and 58% higher than 2019. Clearly, many people took a long, hard look at their financial situation over the past year and got their houses in order.
Value of New Business was also a strong result, up 81% vs. 2020 and 41% vs. 2019. Margins were higher than in the two comparable years, suggesting that Sanlam has been writing higher quality business while growing volumes simultaneously.
There were other nuggets of good news as well. Net fund inflows were more than double the level in 2020 and 73% higher than 2019. The African General Insurance business achieved underwriting margin and investment returns within respective target ranges.
Sanlam is a complicated business and it takes an insurance specialist to fully understand the numbers. However, it's clear that the through-the-cycle view (i.e. 2021 vs. 2019) is positive in terms of key growth metrics.
At earnings level, group operational earnings were 17% higher than the prior year. Headline earnings were only 1% higher but there are numerous accounting complexities in the base. Investors will likely focus on the operational earnings number.
Importantly, the net result from financial services is 7% lower than the corresponding period in 2019. Revenue performance has been strong, but an environment of lower interest rates doesn't make it easy for businesses like Sanlam. There's also the impact of a reduced earnings contribution from the third-party asset management business, in which Sanlam disposed of a 20% stake to African Rainbow Capital Financial Services.
Sanlam Life and Savings (SLS) saw its net result decline -13% as a result of unusually low mortality in 2020 under hard lockdown and unusually high mortality in 2021 due to the second wave. Excluding this impact, the net result would've been up more than 10%.
The star of the show was Sanlam Emerging Markets (SEM) which achieved 33% growth in its net result. Most countries in the portfolio recorded stable or improved underwriting margins, which is a strong result when you consider how many tricky African countries are included in this portfolio. Other international businesses (like India) experienced a negative result this year.
Sanlam Investment Group (SIG) reversed its fortunes from a loss to a profit in this period, thanks to reversals in marked-to-market losses in listed bonds at SanFin. The wealth management business recorded strong growth from performance fees and diversification initiatives, while the third-party asset manager had the opposite experience with performance fees.
Sanlam was satisfied with Santam's performance over this period. The brand certainly took a knock from its fight with small businesses over business interruption claims, but the underlying results seem to be ticking along.
By the end of June, Sanlam hopes to close the deal to increase its shareholding in Saham Assurance Maroc (the leading property and casualty insurer in Morocco) from 61.7% to 84.5%, for a total price of around R2bn. Across the water in the UK, Sanlam is nearly done with selling its interest in Nucleus Financial Group plc.
On a sad note, the company confirmed that the second wave of Covid in South Africa was more severe than the first wave, with a significant impact on mortality claims. The big question is around the severity of the third wave in South Africa, as well as the impact of Covid on operations in other regions.
With the level of diversification and resilience in the business, Sanlam looks likely to remain a favourite of dividend-focused investors.