Should I Buy Old Mutual Plc?

Should Harvey Jones take a trip to sub-Saharan Africa by investing in life company Old Mutual plc (LON: OML)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I am out shopping for shares again. Should I add Old Mutual (LSE: OML) to my basket?

Victorian values

The name Old Mutual offers the promise of solidity in a changing world. Founded in South Africa in 1845, it is now the fourth-largest life company on the FTSE 100, and making great strides south of the Sahara. Its recently published half-yearly results pleased the market, and now I’m asking, should I buy it?

Last time I looked at Old Mutual, back in November, it was cutting its exposure to Europe in favour of fast-growing Africa. As well as its base in South Africa, it had a strong presence in Botswana, Zimbabwe and Nigeria, and was looking to expand into west and east Africa. I suggested that this was a safe way for armchair investors to explore Africa from the comfort of the FTSE 100, but ironically, the UK has been the biggest concern lately, with investors worrying over how the UK’s financial advice fees overhaul, the Retail Distribution Review, will affect its margins. The share price has been more volatile than I would have expected, but it is still up nearly 13.6% over the past 12 months, just pipping the FTSE 100 at 12.3%.  

African explorer

Old Mutual has recovered lately, helped by a positive first-half interim statement, which reported a 14% rise in adjusted operating profits to £801m. Highlights included group net client cash inflows of £9.1bn, up from £3.5bn in the first half of 2012, and a 3% rise in funds under management to £289bn. Earnings per share (EPS) rose 22% to 9.3p. Perhaps the biggest news was a 49% rise in gross sales from emerging markets (ex-South Africa), as Old Mutual expanded its footprint in Ghana, Nigeria and Kenya. If you’ve dropped the BRICs, but are still searching for new investment frontiers, this could be a good way to play sub-Sahara. And a balanced way, because Old Mutual’s US asset management business also had a strong first half.

The future could be a little stickier as markets brace themselves for QE tapering, a point that group chief executive Julian Roberts acknowledged. The prospect has already hit emerging market currencies, with the rand down 16% against the dollar and 14% against sterling. The IMF has downgraded forecast real GDP growth rate for South Africa to 2%, although across sub-Saharan African GDP should grow 5.1% this year, up from 4.9% last year.

Mutual respect

Old Mutual’s valuation doesn’t look challenging, at 10.8 times earnings. This makes it cheaper than Legal & General (14.3%) and Prudential (14.9%), but then, it has failed to match their recent blistering growth. I was disappointed by Old Mutual’s 2.9% yield in November, but it has since climbed to to 3.7%, partly thanks to the recent 20% hike in the interim dividend of 2.1p. It is bettered by L&G, which yields a tasty 3.86%, but beats Prudential’s undernourished 2.56%. Forecast EPS growth of 12% in 2013 and 11% in 2014 is forecast to lift that yield to a crunchy 4.9%.

I liked Old Mutual last year, and I like it today. This could be one to buy next time QE tapering trashes market confidence. But it isn’t good enough to feature in our special report 5 Shares To Retire On. This free report by Motley Fool share analysts names five FTSE 100 favourites to secure your retirement. To find out more, download this report now. It won’t cost you a penny, so click here.

Harvey owns shares in Prudential. He doesn’t own shares in any other company mentioned in this article.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

10% dividend growth! 2 FTSE 100 stocks tipped to supercharge cash payouts

These FTSE 100 stocks have strong records of dividend growth. And they're expected to keep on delivering, as Royston Wild…

Read more »

Investing Articles

Down 17% in a month and yielding 7.39%! Is this FTSE 100 share a screaming buy for me?

When Harvey Jones bought Taylor Wimpey last year he thought this FTSE 100 share was a brilliant long-term buy-and-hold. Has…

Read more »

Investing Articles

Here’s how I’m using a £20k ISA to target £11k+ in income 30 years from now

Is it realistic to put £20k in an ISA now and earn over half that amount every year in passive…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

If I could only keep 5 UK stocks from my portfolio I’d save these

Harvey Jones is running through his portfolio of top UK stocks to see which ones he couldn't bear to do…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

I’m aiming for a million buying unexciting shares!

By investing regularly in long-established, proven and even rather dull businesses, this writer plans to aim for a million. Here's…

Read more »

Investing Articles

3 things to consider before you start investing

Our writer draws on his stock market experience to consider a few vital lessons he would use to start investing…

Read more »

Investing Articles

Will this lesser-known £28bn growth stock be joining the FTSE 100 soon?

As the powers that be plan a reorganisation of Footsie listing rules, this massive under-the-radar growth stock could find its…

Read more »

Investing Articles

Fools wouldn’t touch these 5 FTSE 350 flops with a bargepole – how come I own 3 of them?

Harvey Jones took a chance on three struggling FTSE 350 stocks in the hope that they'd stage a dramatic recovery.…

Read more »