Our opinion on the current state of OMUTUAL(OMU)Old Mutual (OMU) is a leading African financial services group offering a wide range of financial solutions to retail and corporate customers across 17 countries, with primary operations in South Africa and the rest of Africa, along with niche businesses in Latin America and Asia. The company is what remains after the unbundling of Quilter, Brightsphere, and most of Nedbank from the original Old Mutual Plc, which was listed on the London Stock Exchange.
Some estimates suggest that Old Mutual is currently trading at around 30% below its embedded value. The company manages approximately R1.1 trillion in assets. A significant portion of its recent losses was due to an R8 billion write-down in its investment in Nedbank, which has since started to recover. As part of this recovery, Old Mutual unbundled 62 million Nedbank shares worth about R10.4 billion, distributing them to shareholders at a ratio of 1.32 Nedbank shares for every 100 Old Mutual shares held.
Like many insurers, Old Mutual has been vulnerable to the impact of the COVID-19 pandemic, prompting the company to increase its provisions by R2 billion. Despite these challenges, Old Mutual's results for the six months ending 30th June 2024 were positive, with headline earnings per share (HEPS) up by 7% and a return on net asset value (NAV) of 12.6%. The company highlighted that adjusted headline earnings, a key metric for distributable earnings, grew by 3%, supported by a 14% increase in shareholder investment returns driven by improved performance in South African equities.
With a price-to-earnings (PE) ratio of 7.95 and a dividend yield (DY) of 4.92%, Old Mutual appears relatively undervalued. Technically, the share has been moving sideways since March 2020, but given its current valuation, it could begin to perform well soon. We view this blue-chip stock as inexpensive at its current price, making it a potential buying opportunity for long-term investors.
