Sanlam outperforms rivals on emerging-market strategy

Shares in insurer Sanlam outperformed major insurers ahead of the Christmas break, and it was expected the Cape-based financial services company would continue to perform strongly thanks to an entrenched emerging-markets strategy.

Financial Services company Discovery was the second-best performing share for the year to date, a position that some analysts said was a result of its Vitality strategy, which retains customers. The Vitality programme awards Discovery clients for good behaviour in terms of lifestyle.

Sanlam shares are up about 30 percent so far this year, followed by Discovery, up about 26.8 percent. The share prices of these two insurers have risen by a wide margin this year compared to the 2.7 percent share price return at Old Mutual, 0.20 percent at MMI, and Liberty, which is almost flat.

Commenting on Sanlam, one analyst who did not want to be named, said: “Given the slow economic backdrop in SA, people are increasingly buying into their strategy. They can see the benefits of an emerging-markets and Africa strategy.”

Sanlam has exposure to cash-generative businesses in high-growth markets such as India and have been deepening its presence in African markets by diversifying its product range.

The analyst said they did not expect the Sanlam share price to deliver the same returns in 2015, but it was likely that it would stay strong, given Sanlam’s diversified earnings generation position.

WJ de Vries, an insurance analyst at Avior Research said the main factor in Sanlam’s outperformance has been management’s ability to allocate capital into higher-growth businesses with great returns.

However, de Vries thought MMI was well poised to outperform in 2015 as it operated efficiently and was well-positioned for regulatory changes. He said MMI was conservative with capital and able to absorb volatility in the markets.

Old Mutual’s share price performed strongly in 2013 after Scandinavian asset sales. However, some analysts said the recovery story had run out of steam and the market was waiting to see if its investments in the UK would now yield good growth.

Liberty has been refining its strategy and the way it is positioning itself both in SA and the rest of Africa. Some analysts said Liberty was too concentrated in SA’s affluent market and needed to accelerate growth in the rest of Africa. Businesses in Africa were becoming more expensive as international players such as Prudential moved in, creating competition for available businesses.