January 19, 2004
By Edward West
Cape Town - Liberty Group's excess capital could be well over R2 billion and, given the low interest rate, significant share buy-backs or a large special dividend should be undertaken, Merrill Lynch estimated in a research report last week.
Liberty will be well capitalised, although there is some difference of opinion on how these funds will be used.
An analyst who did not wish to be named believed Liberty might hold its capital to help it fund an empowerment deal.
Another suggested Liberty would most likely use the capital to pay out larger-than-usual normal dividends - which would result in Liberty being accorded a higher rating - rather than pay out a single, special dividend.
The analysts said Liberty was the lowest rated among the local insurance shares, purely because its price had traditionally commanded a strong premium, as it usually reported well above the industry average for new business growth.
They said there were questions about how long this trend could be sustained.
The changes to Liberty Group's board attest to far-reaching changes being implemented by the new chief executive, Myles Ruck, following the disastrous slide in earnings at the halfway stage towards the end of last year.
Ruck, previously the chief executive of Standard Bank, was appointed to Liberty last March after Roy Andersen decided to take early retirement.
In August Liberty Group posted a larger-than-expected 46 percent slide in earnings to R1.30 a share in the six months to June, after weak equity markets hurt the life fund operating surplus.
Analysts were unanimous that new business volumes for the life insurance industry overall were poor last year and the second half would be no different.
Liberty warned that second-half profit would continue to be affected by local and global markets. Ruck prescribed cost cuts, improved service and domestic focus to improve the situation.
Since then there has been a host of board changes.
New directors include Angus Band, the managing director of AVI; Sibusiso Sibisi, president of the Council for Scientific and Industrial Research; and Leila Patel, the chairman of the department of social work at Rand Afrikaans University.
From December 3, Saki Macozoma, the chairman of Stanlib and the chief executive of New Africa Investments, also joined the board.
In addition, management at Liberty's Charter Life operation has been changed.
Shareholders, however, will not be disappointed with a weak second-half performance.
One investment analyst who did not wish to be named said the low interest rate and inflation environment would boost new life business in the first half of the new calendar year, albeit off a low base.
Liberty Group's share price gained R1 to R57 on Friday, while the Liberty Holdings counter increased R3.01 to R150.
Publisher: Business Report
Source: Business Report