Discovery lifted profit 70 percent to R5.48 billion in the year to June 30 but the share price got hammered after no dividend was declared.
Yesterday morning, the share price was trading 8.08 percent lower at R113.20 on the JSE, even though Discovery’s directors reported that earnings growth had come from strong operating profit and new business growth in South Africa and the UK, and from a particularly good performance from Discovery Life.
Directors blamed the lack of a dividend due to market uncertainty.
@TradersFrans said on Twitter about Discovery yesterday: “Brilliant results and then decided not to pay any dividends...” @SoulFairy3 tweeted: “Down 10 percent today. Still no dividend...” @Heyngwa tweeted: “Pretax profit is up 66 percent. Traders are apparently just interested in dividends.” @goml696911 tweeted: “South African market not liking the lack of dividend presumably.”
The group said that it remained “well capitalised and highly liquid” and the group’s directors acknowledged that the worst of the Covid 19 pandemic appeared to be behind it.
Nevertheless, the group said in a presentation: “Discovery Board continues to retain a prior stated dividend position and decided not to declare an ordinary final dividend for the period ended 30 June, 2022. The reintroduction of an ordinary dividend will be considered on an ongoing basis.”
At the end of the 2021 financial year Discovery also did not declare a dividend due to the uncertainty created by the potentially volatile economic impact of a continuance of the Covid-19 pandemic.
Group normalised headline earnings per share increased by 71 percent to 885.5 cents per share in the year to June 30, 2022, in an environment where the emergency phase of the Covid-19 pandemic largely passed barring in Asia, and in a market where currency volatility, higher interest rates and inflation and supply side constraints were caused by the war in Ukraine.
The operating profit from Discovery Life increased 200 percent to R4.03bn, driven by positive overall experience, Covid-19 experience consistent with provision modelling, and prudent expense management.
The operating profit at Discovery Insure fell 165 percent to a loss of R162 million, attributed to factors such as bad weather and supply side inflation associated with the cost of repairing vehicles.
The SA Composite's normalised operating profit increased 41 percent to R8.7bn and new business by 15 percent to R14.3bn, excluding new initiatives.
The group said it was emerging from a cycle of “intense organic investment into new initiatives”, dominated by investment in Discovery Bank, and over the year there was increased investment in Vitality Health International, particularly to establish Amplify Health, and the build-out over the year.
There had also been investment in the other large-scale new initiatives, such as V1, the platform to scale the globalisation of the Vitality Shared-value model.
Some new initiatives were also streamlined. In addition to reviewing its stake in AIA Health in Australia, the group decided to exit the UK investment market given the structural change in market conditions, driven by significant margin compression.
“Despite Vitality Invest making good progress, the decision was taken based on the time and resources needed to accumulate the necessary assets under management (AUM) for the business to turn to profitability and the AUM needed to generate material long-term value for the group.”
Discovery Bank's operating loss was R990 million, 10 percent lower than the previous year. The number of clients grew to 470 220 clients from 331 000, while the number of accounts increased to 1 023 790 versus 649 000 in June 2021.
Discovery’s management said new business volumes continued to be strong, with more than 800 average daily new-to-bank sales, versus 500 in June 2021.
edward.west@inl.co.za
BUSINESS REPORT