Old Mutual confirms plans to separate four businesses

Along with preliminary results for calendar 2015, Old Mutual Group announced it will separate its four underlying businesses - Old Mutual Emerging Markets (OMEM), Nedbank, Old Mutual Wealth (OMW) and OM Asset Management (OMAM).

Apart from confirming that it will reduce its 54% stake in Johannesburg-listed Nedbank, the FTSE 100 group said it had a range of options available to complete the route to a final separation it anticipated by the end of 2018.

On total revenue down 12% to £13.7bn, the group produced a 4% rise in adjusted pre-tax operating profit of £1.7bn, although it was up 11% at constant exchange rates.

Underlying earnings per share rose 8% to 19.3p, or 15% at constant rates, with statutory basic EPS up 2.4% to 12.7p.

Directors, led by new chief executive Bruce Hemphill, said as the separation project takes place, dividend cover will be increased to a range 2.5-3.5 times, from 2.0-2.2, hence declared a flat second interim dividend of 6.25p per share and a lower than expected 2015 dividend of 8.9p.

After Hemphill's move from Standard Bank in November, a strategic review into the group's future resolved that the four underlying businesses enjoy limited tangible synergies between themselves and that it would be in the best interests of shareholders to enable the quartet to chart independent courses.

"The strategy we have announced today sets out a bold new course to unlock value currently trapped within the group structure," said Hemphill.

"We have four strong businesses that can reach their full potential by freeing them from the costs and constraints of the group."

The results showed the businesses were each performing robustly.

Netbank's contribution to group operating profits fell 2% year on year to £754m as a result of the weak rand, UK-focused wealth manager OMW lifted operating profits 35% to £307m, while African financial services unit OMEM contributed an almost flat £615m and the 66% owned OMAM lifted its profits 9% to US$229m.

However directors feel that not only are increasing regulatory pressures in South Africa and especially Europe adding "cost, complexity and constraints", but also that the current group structure also "inhibits the efficient funding of future growth plans for the individual businesses, restricting them from realising their full potential".

Hemphill added: "Our new strategy will allow each business to have simpler access to capital markets to fund its growth more easily and be valued more appropriately, with more straight forward regulatory arrangements. We are announcing today a strategy that will allow us to release the potential within the group for the benefit of all its stakeholders for many years to come."

Analysts suggested the language used in the statement suggested the group would entertain a potential bid for OMW.

Shore Capital said a basic sum-of-the-parts calculation on the stock pointed to a value of circa 215p, "which we view as quite conservative, but offering excellent upside potential on the stock".