Sanlam | Slowing growth

Sanlam (SLM) will release FY '18 results on 7 Mar ‘19. We expect FY'18 Normalised HEPS to fall -10% y/y. Normalised HEPS has risen by 5.6% CAGR from FY'14 to '17. The 2017 equity market returns (SWIX: +21.2%) created a high base for asset-based fee revenue. A -11.7% SWIX total return for 2018 has aggravated the FY'18 comparative due to depressed investment returns on shareholder assets and asset-based fee income. The SA economy remains exposed to global trends providing limited support for SLM's SA and EM focused portfolio. We highlight that for the next five years SAHAM Finances will offer lower returns on equity at a higher risk profile. SLM intends to grow SAHAM's life insurance distribution capabilities across 22 African markets. The 2018 global theme of tightening monetary policy has now slowed as geopolitical risks and protectionist policies continue to constrict global growth. While global growth is slowing, we believe SLM's outlook for earnings has stabilised providing for a recovery in H2'19f and FY'20f. SLM shareholders' total return for CY'18 and the preceding 12 months was -5% and -15% respectively. SLM's premium to Group Equity Value (GEV) of 26% now compares favourably to an average premium to GEV between Dec '12 and Dec '18 of 28%.