UPDATE 2-Improving outlook, new business growth cheers investors in S.Africa`s Discovery

Published: 2021-02-25 tag: financials

* Profit decline in the middle of forecast range

* Insurer keeps dividends on hold

* Flags full-year profit rise, reports growth at bank

* Shares rise 4% but slip back (Recasts, adds details, comment)

JOHANNESBURG, Feb 25 (Reuters) - Shares in South Africa’s Discovery rose over 4% on Thursday despite a 10% decline in half-year profit, as it forecast a better full-year performance and reported growth at its new banking unit.

The insurer, which ties premium rates to clients’ lifestyle choices, had earlier this week warned of an up to 15% decline in profits because of the impact of foreign exchange losses and interest rate changes. On Thursday, it also said it would keep its dividend on hold for now.

However, the company also said that going forward the impact of these factors would recede over the full year, while hefty coronavirus-related provisions would also likely not repeat.

Its headline earnings per share (HEPS), the main profit measure for the period, would therefore likely be at least 20% higher, it said.

“Discovery’s business model has proven to be highly relevant during the COVID-19 pandemic” and it was positioned to capitalise on emerging trends and opportunities, it said.

The insurer also said customer numbers at its bank, which it launched in 2019 and has ploughed profits back into building, had grown from 78,000 in February 2020 to 287,000 by the end of December. Deposits are almost five times higher at 5.7 billion rand ($387.47 million).

Neelash Hansjee, portfolio manager at Old Mutual, said the performance of other new business lines, such as a partnership with Chinese insurer Ping An also pushed shares up.

“The emerging businesses are delivering a consistent performance of operating profit growth,” he said.

HEPS in the six months to Dec. 31 was 280.30 cents, down 10% from 311.70 cents a year earlier.

After initially rising over 4%, Discovery’s shares were more than 2% down by 0944 GMT. Hansjee said traders were cashing in on gains after a strong run leading up to the results. ($1 = 14.5507 rand) (Reporting by Emma Rumney; Editing by Rashmi Aich and Christian Schmollinger)

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