South Africa's second-biggest listed insurer is extending its dividend freeze despite a 76% surge in profit during the six months through December, opting for more caution in the face of risks from another wave of coronavirus infections.
Discovery Ltd., which hasn't paid a dividend since the global health emergency in 2020, will refrain from returning money to shareholders until it has “complete clarity on how Covid plays out,” Chief Executive Officer Adrian Gore said in an interview Thursday.
“We hope we are coming out of it, but it's not yet clear where Covid is, and we have to remain, very, very careful,” Gore said.
The news sent Discovery's shares down more than 4% in Johannesburg, giving it a market value of just under $7 billion.
Economic damage from the pandemic is still a drag on Africa's most industrialized nation, whose discovery of the omicron variant sparked a flurry of international travel restrictions.
Johannesburg-based Discovery expects a less infectious wave in the coming months, thanks to the high levels of vaccination and immunity as already seen in the significant reduction in case fatality rates from the spread of omicron during the fourth wave.
At the same time, the insurer is also pricing in the risk that a more severe variant could yet emerge. Discovery said it has adequate reserves in place should the fifth wave land.
‘Prepare for the Worst'
“We are expecting a benign Covid process going forward, but we must prepare for the worst if you are a financial institution so we keep our capital strong and highly liquid to make sure we are strong,” Gore said. But “given our vaccination rates and high immunity levels -- we're not expecting a dramatic dislocation from the fifth wave.”
Discovery's net income for the six months ended Dec. 31 increased to 3.3 billion rand ($215 million), while headline earnings per share rose by 78% to 499.1 cents, according to a statement.
The insurer's shares retreated for a sixth consecutive session after the earnings announcement, the longest losing streak since June 2013. The stock was down 4.3% as of 3:12 p.m. local time, the most on an intraday basis since November.
The company is still trading at a premium to its embedded value -- a key metric for insurers that combines the current value of future profits with the net value of assets -- of 126.23 rand per share.
Gore said, however, that the measure may not fully capture the value of the company since it excludes high growth areas such as its Vitality business or investments in China's Ping An Health Insurance.
“For a traditional life insurance company, the enterprise value is kind of the net asset value of what you've done,” he said. “In the case of of Discovery, actually, all of our outgrown businesses hadn't been included in embedded value. So it's only the embedded value on part of the group.”
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