Published Date: 2021-09-10 | Source: INCE|Community | Author: The Finance Ghost
Much like sector peer Discovery, Sanlam's share price has been a disappointment over 5 years.
Covid has not been kind to the insurance businesses, as they have had to deal with excess mortalities and all-time-low interest rates that hurt their investment income.
I must be honest - it takes specialist skills to properly interpret and understand insurance results. I'm not going to remotely pretend to be an expert in this space.
One thing I do understand is return on equity, which gives a reasonable expectation of performance by financial services firms. Back in 2019, when people could still attend music festivals and walk around without masks, Sanlam achieved return on equity of just 6.4%.
Adjusted return on equity, which excludes "investment market and currency volatility, changes in interest rates and other factors outside of management's control" (lol) was 11.9%.
In 2018, that measure was 19.4%, while that pesky return on equity that includes all the real-life stuff was 11.6%.
The point I make is that Sanlam doesn't seem to generate great returns on equity unless you strip out market volatility. I'm sure all management teams would appreciate that lens being applied to their efforts.
For the six months to June 2021, return on equity was 3.9% and the happy version of return on equity was 6.1%. Once again, there isn't much excitement here for investors.
Those hoping for a dividend will also be disappointed, because there isn't an interim one. Jokes aside, Sanlam's claim to fame was that the company grew its dividend every year over a two-decade period. Then along came a virus and even the likes of adjusted maintainable normalised core return on equity couldn't save the dividend situation. If you've read enough earnings announcements, you'll get the joke.
It's worth noting that Sanlam did manage to pay a final dividend for the 2020 financial year (300 cents per share) so the lack of interim dividend is hopefully a short-term pain.
On the plus side, the announcement does reference promising new business growth in the life insurance and investment arms of the group. This will no doubt be good news for return on equity in future, especially the kind that strips out all the market irritations that are bothersome for management.
Sanlam's share price is down nearly 5% over 5 years. The year-to-date increase is around 8.5%.