Alexander Forbes | Trying to turn the corner

Under new leadership, Alexander Forbes (AFH) has committed to simplifying the business and returning to its core competency as an independent, advice-led, pensions manager. The sale of AFH's insurance operations will release R400m in regulatory capital and focus growth towards a capital light administration, consulting and asset management model. Due to limited industry growth, value leadership and fierce competition will force consolidation. With regulatory tailwinds implemented in 2018/19, we expect AFH to be a primary beneficiary of market consolidation. To create a more scalable administration business, AFH will require investment into systems and processes, delaying returns to shareholders. Based on current economic conditions, we do not believe management's revenue or cost targets can be achieved over the next three years. We expect a further special dividend to support an 8.5% forward dividend yield. We believe a material rerating in the AFH valuation remains two years out as management builds trust and execute on strategic plans.