FTSE slips back but Old Mutual soars on £9bn break-up talk

Discussion in 'Market News' started by Lily, Mar 7, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Company says strategic review will consider all options

    Leading shares are heading lower as investors take profits after recent gains, but an expection is Old Mutual.

    The investment group has jumped 14.6p or 8% to 194.3p following weekend reports it could be preparing a £9bn break-up. Sky News said it was working on a plan to split into standalone companies comprising its stake in South Africa’s Nedbank, its UK wealth business, its South African emerging markets division and its institutional asset management operations.

    Old Mutual Wealth has developed a vertically integrated model in the UK with the Skandia platform sitting alongside distributor Intrinsic and the asset management business OMGI, together with its in-house manufacturer. Total asset amounted to £98.7bn at the end of November 2015 (current figure is likely to be lower) with 2015 operating profits expected to amount to around £265m.

    With a fair wind this business could be worth around 15 times 2015 full year earnings which would imply a figure of around £3bn, equivalent to around 3% of funds. The group’s current market capitalisation of £8.9bn compares to our adjusted group value of around £10bn, within which Old Mutual Wealth accounts for around £2.0bn…hence, a disposal/demerger at this value could add around £1bn to this figure, equivalent to around 20p per share.

    Investors will be hoping that it’s a case of 2+2=5 with the individual assets of the company being worth more on a stand-alone basis than whilst held together.

    Some might argue the timing is rather fortuitous just days before results, getting the shares back to the 200p mark last traded in early December. It also closes the December gap down when South Africa-exposed stocks were hurt by the ousting of the country’s finance minister, stoking scepticism among foreign investors.

    With Randgold’s share price up 53% year to date and Fresnillo up 35% it’s time to take profits. Both stocks look fully valued and imply metal prices that are far above spot leaving their risk-rewards skewed to the downside.

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