Old Mutual Returns to Africa as Breakup Ends London Listing

(Bloomberg) -- South Africa’s prodigal insurer returned home to a luke warm welcome on Tuesday.

Old Mutual Ltd. started trading its stock in Johannesburg at 28.50 rand before swinging between 28.20 rand and 29.39 rand. The listing -- done in conjunction with others in Namibia, Malawi and Zimbabwe -- brings an end to a global acquisition spree that took its former parent Old Mutual Plc from its Cape Town roots to London, New York, Beijing and even Bogota.

The 173-year-old insurer on Monday spun off U.K. wealth manager Quilter Plc and has sold its U.S. asset manager and Latin American units after concluding the divisions would be worth more on their own. That left Old Mutual Ltd. with its former parent’s African insurance, asset management and banking businesses, while also drawing to a close Old Mutual Plc’s 19-year listing on the London Stock Exchange.

The share price isn’t yet reflecting the “value unlock” Old Mutual hoped to achieve, said Renier de Bruyn, an investment analyst at Sanlam Private Wealth. Still, this means the stock is trading at an “attractive” price-to-earnings ratio of 7.5 times, he said. That compares with a historical P/E of 13 for Sanlam Ltd., its biggest South African rival.

Almost 2.4 million Old Mutual Ltd. shares had traded by 10:47 a.m. in Johannesburg, more than three times the volumes seen in Sanlam, MMI Holdings Ltd. and Discovery Ltd., with the securities priced at 28.60 rand.

Strategy Shift

The break up serves as a reminder that Old Mutual Plc could never really shed its African heritage. The South African business continually accounted for the bulk of earnings despite an acquisition spree which included the purchase of Stockholm-based Skandia AB for about $8 billion in 2006 and Boston-based United Asset Management Corp. for $1.4 billion in 2000.

“Old Mutual’s strategy of trying to build a completely global business I think clearly has failed,” said Brad Preston, chief investment officer at Mergence Investment Managers Ltd. in Cape Town. “We’ve seen them reverse that completely.”

Old Mutual’s approach, which saw it bulk up mostly in developing markets, contrasts with that of Sanlam. Cape Town-based Sanlam started trading its shares in Johannesburg in November 1998, about seven months before Old Mutual moved its headquarters to London and listed its stock in the U.K. capital. Over that period, Sanlam’s stock returned almost 2,000 percent, while Old Mutual’s Johannesburg-listed securities returned about 480 percent.

“Sanlam has certainly out performed and executed incredibly well over the last number of years,” Preston said. “They have executed much better on their strategy.”

Started in 1918, Sanlam focused on Africa and other emerging markets after its IPO to extend its reach to 34 countries on the continent, adding impetus to that objective with the $1.1 billion purchase earlier this year of the shares in Morocco’s Saham Finances SA it didn’t already own.

To make up ground in Africa, where Old Mutual has operations in 13 countries, Old Mutual Ltd. Chief Executive Officer Peter Moyo will focus on defending and growing market share in South Africa by revamping the company’s digital offerings. He will also improve cross-selling insurance products into its East African customer base, such as its Kenya-based micro-lender Faulu, according to the company’s prospectus.

The next step in the separation process will see shares in Nedbank Group Ltd. unbundled to shareholders in about six months. Old Mutual will retain 19.9% in the Johannesburg-based lender.

The shares will probably remain constrained because the listing undervalues Old Mutual Ltd.’s businesses, said Michael Porter, a trader at Unum Capital in Johannesburg. “We do expect some selling pressure on it but if you’ve got a medium- to long-term hold you should benefit out of it."

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