Research archive for DSY

Discovery released interim results for the half year to end December yesterday morning. This is a great business. A business that was conceptualised by an incredible individual who has seen in large part his vision realised. Adrian Gore is not finished. He seems passionate about the business, he walks the walk and he talks the talk. And talk he can. At the results presentation he made it known that Brexit, the weaker Pound to the Rand and the weakness in the investments (statutory capital) in the UK (yields in Gilts powering to an all-time low) has had a negative impact on the UK operations.

The first read through of the Discovery annual results revealed that the business is very definitely a growth oriented one. Different businesses in the core market, South Africa, continue to take market share and reinvent short term (and life) insurance, investments and bed down their core business, health insurance. There is a big gap between those that are lucky enough to afford private healthcare in South Africa and those who have to use the public health system, most will agree that the spend to outcomes ratio is not the best, to put it mildly. The Vitality program has undoubtably been a success and I think that we are only starting to scratch the surface. The potential of the existing partnerships in countries like China, with Ping An Insurance and more recently in Canada and the US (John Hancock), as well as some of the bigger economies of Europe represent exciting white labelling of the Vitality product.

Discovery made an announcement yesterday that needed closer and further inspection. The headline reads Discovery to introduce Vitality to Japan. Japan of course is a country with over 125 million people, where the average age is around 45 and is possibly one of (if not the) most sophisticated societies on the planet. Organisational skills and attention to detail is not lacking.

Discovery, that company that we had a short look at on Friday deserves a better look. Bright, our newest and best colleague, was supposed to go, time definitely got the better of him. He is young, and that is what you need in the industry, young people who understand and know the history of the stock market, yet their lived experiences don't include the big drawdowns. I suspect that as you go on, it becomes that you are more cynical, in general. That is why it is refreshing when older people become more optimistic as their lived experiences actually improve in time. Just an observation actually, I could tell through the Adrian Gore presentation of the results that they are very proud of their business and their achievements.

Discovery released half year numbers yesterday morning, remembering that their trading statement had spooked the market a little earlier in the month -> Discovery Trading update. The numbers themselves at face value look a little unappealing, what they are doing here however is building a bigger global business and on the verge of a bank. What is still most impressive is that when Adrian Gore delivers, he speaks with the same enthusiasm and energy each time.

Discovery trading update. At face value I can understand the market reaction, sending the stock lower by nearly nine percent in the first hour of trade. Normalised headline earnings per share are likely to be between zero to five percent more. Huh? And Headline Earnings per Share and Basic Earnings per Share are likely to be 45 to 55 percent lower. What? Why? first, let us look at the company measure they like to use, Normalised headline earnings per share were impacted by two factors. In their words:

No football fans, not Wayne Rooney and his merry bunch, rather Discovery are introducing Vitality to Canadian based financial service group Manulife, and not your beloved Red Devils. Which as far as I can tell (ducks under the table), are not having the best season in the history of everness (I made up a word). Their only consolation is that Chelsea are having a worse season. Whilst at face value this may seem like a "new" announcement, it is really an extension, the company operates under the brand name John Hancock in the US. You will recall from our message last year in April: John Hancock tie up. They have operations all over the world, a strong presence in Asia and in Europe. In fact, if you remember right, the company was a worldwide sponsor of the 2008 Olympic Games in Beijing.

Discovery reported results yesterday morning, we did not attend the presentation, we did watch it on TV however. Adrian Gore is a polished presenter, he tries to crack one every now and again, he must work on his humour in the delivery. One of the things that he said that did elicit a laugh from the audience at the JSE auditorium was that the Dachshund used for advertising the Vitality product in the United Kingdom has seen the sales of that said breed of dog rise significantly. Gore queried with one of his management team whether or not one of the two dogs came from Cape Town. Go onto the Vitality UK website to see what I mean about the little dog, those avid cricket watchers would be familiar with the little dog displayed across the blimp in the recent Ashes series.

An interesting couple of announcements from Discovery over the last couple of days, one relates to the directors and related parties with regards to following their rights. First, the quantum of Adrian Gore's share, looking to maintain his shareholding in the company. We were discussing this a little in the office yesterday. The group CEO exercised 4,318,732 rights at 90 Rand, the total amount is a crazy 388,685,880 Rand. Read that again, 388 million Rand to maintain his holding in the company and to not be diluted. Obviously he does not have the money lying around, right?

And then a more significant announcement from Discovery, introducing a US life insurance and investment business, John Hancock, which will essentially white label the Vitality product. Here is the official announcement: DISCOVERY AND JOHN HANCOCK ANNOUNCE STRATEGIC PARTNERSHIP. John Hancock is a really old US based investments business named after one of the US "founding fathers". Hancock has the longest serving President of the Continental Congress. Remember the Lincoln speech about four score and seven years? That refers to the Continental Congress, so Hancock has an important name in American history.

Discovery go ex the rights today, meaning that the company starts trading without the rights. It is simple, on Friday was the last day in order to participate in the rights issue in the ratio of 9.38641 per 100 (at 90 Rand apiece), the share price today will trade accordingly lower, possibly around 6-7 percent lower from where it opens. The shares that you buy today include all the extra ones (55.5 million) that are going to be listed in the coming weeks. Remember, we think that you MUST follow your rights. Apply that ratio above to your current holding of Discovery shares, as per Friday's mini statement, and then multiply it by 90 Rand a share, simply make that deposit.

The long awaited Discovery Rights issue announcement came yesterday. I suppose not too long awaited, the company only announced this on the 24th of February, for some market types that is too long ago to remember. OK, so give me the lowdown, give me the skinny! Urban dictionary will help you to understand those terms and a whole lot of others that you wished you hadn't looked at.

Let me flesh out the Discovery rights issue a little. First things first, remember that a company has various options when it comes to raising money, they can turn to the debt markets and borrow money, paying it off over time. They can borrow money from the bank, provided that the bank is willing to lend them such a large sum. The last option is to issue more equity, this is what Discovery are doing. A rights issue is simple, you as the shareholder are given the option to follow all the other shareholders in the same ratio.

Yesterday we received 6 month results for the period ending 31 December 2014 from Discovery. This is our only recommended stock that falls within the financial services sector. Although there is a big healthcare element to this business which they have targeted as a disrupter in the industry. More on that later, lets first look at the financials.

Discovery Holdings released a trading statement yesterday for the 6 months to end December 2014. A quick refresher, remember that the company bought the rest of the JV with Prudential in November: Discovery buying out PruHealth. The company updates, remembering that there are actuaries galore at Discovery, you need to read this trading statement carefully: "following Discovery's acquisition of the remaining 25% issued share capital of Prudential Health Holdings Limited, the holding company of PruHealth and PruProtect joint venture, from Prudential Assurance Company ("Prudential"), the accounting of the puttable non-controlling interest in respect of Prudential's put option falls away, and the difference between the current value and the purchase price of the 25% will be released to the income statement for the six months ended 31 December 2014." Of course you say, why didn't I do the math on this one, I should have known! As a result, guidance for the half just passed is as follows: