The release of Santam’s interim results to end-June had little effect on the market, with Santam shares down 0.1% to 7 495c on low volumes.

“First impressions are that the results are a little worse than expected, but the business model appear sound,” said Simon Fillmore, an analyst at Independent Securities.
The CEO of Santam, Ian Kirk, described this period as challenging. The South African operations of the company achieved an 8% increase in gross written premium, but the net underwriting result for the continuing operations declined during the first half of the year, from R469m to R326m.

Santam prepared the market in advance with a trading statement in early August, indicating that the headline earnings were going to be between 85% – 90% lower than the corresponding period from the previous year. As a result, the market was prepared for the outcome.

According to Fillmore the fact that management held its dividend policy is a sign of a solid underlying business. “Over the last 11 years, management has kept its dividend policy, despite going through some torrid times. This indicates a sound business model,” he said.

Like many of its competitors, Santam has been negatively affected by weak equity markets and a tough operating environment.

Santam also made the decision to move some of its float (funds generated by insurance activities), out of low-risk interest-bearing investments and move them into equity investments.

This, along with a strong exposure to financial and industrial shares which had performed poorly up until the end of June 2008, damaged the company’s performance.
Since then the company reduced this exposure of its float to the equity markets but the financial services and industrial sectors remain around the same level as they were at the end of June 2008.

The market will have noted Santam’s progress in exiting its European operations. These activities did result in some once off costs being incurred.
Santam’s offshore business units had a negative impact on the company last year, with an R168m after tax loss and Santam has been in the process of exiting these businesses.
According to analysts once the equity cycle turns and with Santam having a very lean capital structure minus the offshore operations, the company will be able to generate some healthy returns for shareholders.

Reference: www.fin24.com