Daily Equity Report
Seed Weekly - Alexander Forbes returns to the JSE
Financial services company Alexander Forbes Group Holdings became the 11th company to list on the JSE this year when it returned to the main board on 24 July. After initially listing in 1996, the company was bought out by a private equity consortium led by Actis in 2007. When the private equity owners indicated their intention to exit the investment, shareholders voted in favour of re-listing the group and selling a 34% stake to Mercer Africa, a subsidiary of Forbes’ long-time strategic US partner Marsh & McLennan.
Alexander Forbes offers a wide range of services across the financial services sector. The group’s core businesses comprise Alexander Forbes Financial Services (AFFS), which offers retirement fund administration, employee benefits, healthcare consulting and actuarial services, and Investment Solutions (IS), which offers investment administration and multi-management services.
The group’s product range is further diversified through Alexander Forbes Insurance, which offers motor, household and business insurance to the retail and institutional market.
Geographic diversification comes via AfriNet, which offers employee benefits, risk services and actuarial consulting in Botswana, Kenya, Namibia, Nigeria, Uganda and Zambia. Alexander Forbes International offers similar services to clients in the UK, Abu Dhabi, Belgium, Ireland, and the Netherlands.
The company’s latest results, for the financial year ended 31 March 2014, must be read in the light of a recent balance sheet restructuring operation. In order to simplify its balance sheet and provide more flexibility, the African Risk Services business was sold to the Marsh group, Guardrisk was sold to MMI, and selected UK operations were also disposed of.
Post the restructure, and before the re-listing, the shareholding and capital structure were as below:
For FY14, the group reported an 18% increase in net revenue to R4.4bn, with operating expenses increasing by 19% to R 3.4bn. The resultant R 1bn profit from operations is a 12% improvement on FY13. Investment income increased dramatically from R 129m to R 233m, while finance costs remained flat at R 843m.
All divisions were able to increase net revenue and profits during the year, with profit from the international and African operations growing very strongly indeed.
Alexander Forbes believes that the group is now well positioned for growth after the completion of the restructure and the re-listing. Management believes that their key differentiators are a strong institutional integrity and capacity, a high performance accountability culture, focused investment in leadership and increased employee engagement.
The combination of AFFS and IS enables the group to offer a holistic service across the entire value chain, from administration and advice to managing underlying assets on a multi-manager basis. By aligning themselves with the global trend of integration and consolidation of service providers, the group hopes to grow its market share further.
As a first growth strategy, the group aims to use its well-established institutional client base to expand its footprint in the SA retail space. AfriNet is the focus of the group’s second growth strategy, in which AF will continue to establish the brand in sub-Saharan African countries while leveraging off their established SA skill set. The third and final growth strategy is an increased focus on the public sector in Africa, often the largest employer in a country and a key driver of future African growth.
The share opened at R 8.10 on the first day of trading, 8% higher than the initial public offer price of R 7.50. The share added a further 12% since, closing at R 9.10 on 28 July. In statements to the media, the group mentioned that it may pay out as much as 67% of its earnings as dividends to shareholders.
Alexander Forbes is not held in the Seed Equity Fund or Seed Model Share Portfolio, but Seed will keep assessing the share in light of the results of the group’s growth strategies.
Cor van Deventer
Tue, 29 Jul 2014- 10:44
021 914 4966