Discovery | Innovating an ecosystem of optionality
Discovery's Vitality network is forming a global ecosystem for innovation. DSY are creating optionality for multiple shared value initiatives by investing c.R500m in the centralised platform, Vitality ONE. With c.70% of costs fixed, we expect the marginal return on capital for Vitality Group to continue increasing as it gains scale. Globally, Vitality adds +200k members monthly, records 1k activities a minute and develops c.18 products a year for its partners. We expect profitability from Vitality Group to increase from R1m in H1'18 to R427m in FY'20 (FY'17: -R110). We believe DSY will rerate to a 22x fwd. PE from 18x due to an accelerating earnings profile.In Feb '18, Vitality Group announced the launch of Gateway, a frictionless platform for digitally delivered employee benefits. With c.46% of the US population living with a chronic disease, the effective delivery of digital therapeutics is a powerful proposition for employers, health insurers and healthcare providers.
In the following note, we evaluate DSY's potential to monetise Gateway and believe the concept reinforces an accelerating long-term earnings growth profile.
Discovery is an integrated financial services organisation, focusing on health insurance, life assurance, investments and savings products, wellness and short-term insurance. Co. operates primarily through six subsidiaries which operate in South Africa: Discovery Health, Discovery Life, Discovery Collective Investments and Discovery Investment Services, Discovery Vitality and Discovery Insure. In the U.K., Co., via a subsidiary, Discovery Offshore Holdings Limited, has a joint venture with Prudential plc., the PruProtection group of companies, which provide health and life insurance products. In the U.S., The Vitality Group Inc. provides Vitality as a stand-alone product.
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