Discovery FY - Ex SA Profits

Yesterday Discovery reported results that were in the middle of their guidance range. Even though the bad numbers were not a surprise, the stock still closed down 3.8%. Profits for the year decreased by 97%. The impact of Covid and low interest rates really hurt.

The best part of Discovery results is when Adrian Gore talks about the interesting member stats. In this presentation, he showed that the higher your Vitality status, the less impacted members were by Covid. Which makes sense I suppose. He also showed that members with a higher Vitality score, drive better and are better with their money. The idea is that Discovery will retain better quality and more profitable members. They then use all the data that they are collecting across health, investing, driving and banking, to create intellectual property so that they can sell services to international companies.

In volatile times like this, it is probably best to look at the new business growth of a company. For Discovery, the only division that went backwards was their Discovery Invest division. The really exciting division is their China operation, where they partnered with Ping An. The division grew new business by 28%, which translated into a 467% increase in profits. It is coming off a low base though.

Given Discovery's size locally, the organisation will be heavily impacted by how well South Africa's economy performs. Unfortunately, the short term prospects of the economy don't look good. What stands out about Discovery are their international partnerships, particularly in China. The question to ask now is if the international part of the company can grow fast enough to carry the local business. You still have to back Discovery to continue to be a driver of innovation and value creation for their shareholders.