MMH H1 results a promise for a good run for investors

Johannesburg – Momentum Metropolitan Holdings today announced its results for the first half of the financial year ended 31 December 222. The Group delivered normalised headline earnings of R2 230 million for the six months ended 31 December 2022, up 46% on the prior period. The Group said while the prior period’s results were negatively impacted by heightened mortality experience resulting from Covid-19 (net of releases of Covid-19 reserves), mortality experience in the current period had normalised to levels last seen in 2019.

It said operating profit more than doubled to R1 898 million, from R895 million in the prior period. This result was supported by the improved mortality experience, coupled with an improvement in investment variances, with all business units, except Momentum Investments and Non-life Insurance, having grown their operating earnings.

The Group said Momentum Investments reported lower operating earnings mainly because of reduced revenue on the Momentum Wealth platform driven by lower new business volumes and weak market performance, while a high claims ratio negatively affected Momentum Insure in the Non-life Insurance segment.

The Group’s explained that investment return declined by 47% to R332 million, mainly driven by negative fair value movements on the Group’s investment in venture capital (VC) funds. The prior period included significant fair value gains on these VC funds.

However, normalised headline earnings per share increased from 99.9 cents to 148.8 cents, with headline earnings per share increasing from 92.4 cents to 134.2 cents, while earnings per share improved from 48.9 cents to 171.3 cents. This high growth in earnings per share was to an extent due to the partial write-down in the prior period of the goodwill previously recognised in the acquisition of the Alexander Forbes Short-term Insurance business, it said.

The Group said its PVNBP declined to R33.3 billion, 10% lower than the prior period, with Momentum Corporate delivering pleasing growth in both single and recurring premium new business in FundsAtWork. Momentum Life’s improved PVNBP on long-term savings products was partly offset by modest protection new business volumes. Metropolitan Life’s PVNBP remains in line with the prior period. Momentum Investments’ new business volumes declined due to lower flows on both the local and international Wealth platforms. Momentum Metropolitan Africa saw a decline in new business volumes, mainly driven by the non-repeat of large corporate deals secured in the prior period in Namibia and Lesotho.

The Group said its VNB declined to R324 million, 19% lower than the prior period, mainly impacted by reduced volumes, while Momentum Corporate delivered a strong VNB contribution of R74 million from higher sales.

Return on equity and embedded value

The Group’s Return on equity (ROE) for the period was 18.4% (annualised), up from 15.9% in the prior period. This increase, it said, follows the Group’s earnings improvement together with an ongoing focus on capital efficiency.

Group embedded value per share was R31.39 on 31 December 2022. The return on embedded value per share was enhanced by our share repurchase programme, ultimately reflecting a 15.6% return (annualised) for the period. This is an improvement from the 11.0% reported in the prior period.

Solvency

The Group said it remains well capitalised, with regulatory solvency positions of most of its regulated entities remaining toward the upper end of their specified target solvency ranges. For Momentum Metropolitan Life, the Group’s main life insurance entity, the Solvency Capital Requirement (SCR) cover decreased from 2.03 times SCR at 30 June 2022 to 1.98 times SCR at 31 December 2022, predominantly due to an increase in the SCR and following the dividend and share buyback programme. Momentum Metropolitan Holdings had a group SCR cover of 1.6 times SCR at 31 December 2022, in line with the 1.6 times SCR at 30 June 2022.

Dividends

An interim ordinary dividend of 50 cents per ordinary share was declared, representing a 43% increase from the 35 cents per share interim ordinary dividend declared in the prior period. The interim dividend represents a payout ratio of 34% of normalised headline earnings.

Outlook

Momentum Metropolitan Holdings said it is pleased by the good earnings achieved by the Group over the past six months despite the headwinds faced in the current economic environment. The positive mortality experience variances in our main life insurance business units continue to suggest that the Covid-19 pandemic has reached its endemic phase, it said, adding that the normalisation of mortality experience, combined with the disciplined execution of our strategy and ongoing focus on efficiency, means that we expect our earnings to be robust for the rest of the financial year.

“We will continue to focus on achieving the Reinvent and Grow financial targets for F2024, namely normalised headline earnings of R4.6 billion to R5.0 billion and ROE of 18% to 20%.

“While our earnings outlook has improved over the past eighteen months, recent pressure on sales volumes is a concern. Disposable income remains under pressure due to rising interest rates and high inflation, as well as the lack of economic growth in South Africa. This is likely to put ongoing affordability pressure on new business volumes, particularly on long-term savings and protection business. Investment business is negatively affected by other factors, such as low confidence in SA asset classes and by consumer preference to maintain assets in liquid low-risk investments.”