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This is proving to be a watershed year for investment holding companies on the JSE. Some of the most famous names of all are unbundling the assets that made them famous in the first place.

The market has been valuing such companies at painful discounts to the underlying value of the investments in the portfolio. There are good reasons for this (like the head office costs of such structures) and arguably cyclical reasons (like a souring of sentiment towards these structures in recent years).

Since listing in 2011, RMI has achieved a compound shareholders’ return of 17.9%. This is an extremely impressive number.

Back in September 2021, Rand Merchant Investment Holdings (RMI) announced an intention to unbundle its investments in Discovery and Momentum Metropolitan to shareholders. After all, these are listed companies that investors can access directly, so why should they continue to sit in RMI?

At the time, RMI envisaged a R6.5 billion rights offer to help bring debt down to an appropriate level in the new, smaller group. Thankfully, this was negated by the sale of the group’s 30% interest in Hastings Group, which was announced in December 2021. The proceeds of R14.6 billion represented the creation of “significant shareholder value” in the words of RMI and paid off the preference share funding.

These proceeds have taken the group into a net asset position and have supported the declaration of a special dividend. The total dividend (special and ordinary) for the six-month period to December 2021 is 165.5 cents per share, far higher than 22.5 cents in the comparable period.

At the time of the unbundling announcement, the group stated an intention to follow an active investment strategy going forward. In a display of capital discipline that could be a lesson to many other management teams, RMI has elected not to pursue such a strategy and will instead focus on its core asset OUTsurance, an existing platform that is still growing.

The investments in RMI Investment Managers and the AlphaCode portfolio of fintech companies are under discussion with a view to finding the optimal way forward for these businesses.

Holding company and personnel costs of RMI of between R25 million and R30 million will be reduced over the next six to twelve months. This gives great insight into why these investment holding companies tend to trade at a discount.

In the results for the six months to December 2021, the intrinsic net asset value of the portfolio has increased 14%. Over the same period, the market capitalisation increased 41%. This means the share price increased much faster than the value of the underlying investments, so the discount closed considerably based on these value unlocking efforts.

RMI highlights this point in the announcement, noting that the share is trading at a discount of just 2% to the intrinsic net asset value vs. a discount of 30% before the announcements.

Interestingly, the continuing operations in the group didn’t have a great period. OUTsurance earnings fell by 23% and RMI Investment Managers and AlphaCode investments fell by 16%.

OUTsurance grew annualised new premiums written by 18% but the South African operations were hit by higher claims, including the normalisation of motor claims as South Africans returned to the roads. At Australian business Youi, the sharp increase in the claims ratio from 53.4% to 62% was due to natural catastrophe events like the earthquake in Melbourne.

Inflation is good for OUTsurance in terms of revenue growth, as the group has suffered a long period of low premium inflation. This will help in 2022.

The comparative period for RMI Investment Managers included a significant amount for performance fees earned which was not repeated in this period. Assets under management increased 24%, of which net inflows contributed just over half of the growth.

RMI Investment Managers will continue its strategy of being a “value-adding but non-interfering shareholder of choice” for the independent asset management industry. The portfolio is largely complete, so the focus is on offering affiliates access to strategic support.

The announcement doesn’t give any significant details on the AlphaCode performance, merely noting that it continues to perform in line with expectations. The AlphaCode Explore and Incubate programmes supported 45 entrepreneurs in 2021 and helped the cohort achieve an average of 43% revenue growth. The startups created 46 jobs in the process.

The internal valuation of OUTsurance increased by 16% year-on-year to almost R39.7bn. The RMI Investment Managers and AlphaCode valuation increased by 31% to nearly R1.9bn, so OUTsurance is clearly the core asset. These valuations have increased despite the negative earnings results.

RMI closed 11% higher on the day as the market applauded the news of the discount being closed, hopefully once and for all.

Banking results season is well underway, with Absa as the latest company to report on the year ended December 2021.

If you thought the swings at group level over the past two years can be significant, wait until you read deeper and see the individual business unit performance. For example, the Vehicle and Asset Finance unit swung from a loss of R927 million in 2020 to a profit of R605 million in 2021!

Gross loans and advances increased 7% and deposits were 12% higher, so the bank has followed a cautious strategy in getting money out the door. Interestingly, credit card loans only increased by 1%! To give context to that, instalment credit grew 9% and mortgages grew 8%.

Linked to the balance sheet strategy, credit impairments fell by 59%, resulting in a credit loss ratio of 0.77%. This is way down from 1.92% in the Covid-infested 2020 financial year.

Revenue increased by 5%, with the growth driven entirely by net interest income increasing 9%. Non-interest income was flat vs. the prior year. Net interest margin improved from 4.17% in 2020 to 4.46% in 2021 as interest rates stabilised.

To give an idea of how sensitive the banks are to interest rate movements, Absa’s net interest income would change by approximately R600 million if interest rates changed by 1%. To be clear, interest rate increases are positive for banks.

Operating expense growth was just 1%, so that’s a feather in Absa’s cap for cost control, although a major contributor was high non-recurring advisory fees in the base. This helped drive an improvement in the cost-to-income ratio from 59% to 56.6%. Further down the income statement, pre-provision operating profit increased by 11%.

Thanks to the improved credit loss ratio, diluted headline earnings per share jumped by 193% and the net asset value (NAV) per share increased by 12% to R156.41. Yesterday’s closing price of R177.45 represents a 13.5% premium to NAV per share.

Absa hopes to improve return on equity to over 17% by 2024. In 2021, return on equity was 14.6%, so there’s a long way to go.

The bank declared dividends of 785 cents per share in 2021, of which the final dividend is 475 cents per share. Based on the full year dividend and yesterday’s closing price, the trailing dividend yield is 4.4%.

Standard Bank is the latest financial institution to release results for the year to December 2021. The trend in the sector has been one of recovery after 2020 was severely impacted by Covid.

The blue bank is no different, with a rebound in headline earnings of 57% to R25 billion. Return on equity jumped sharply from 8.9% to 13.5%, a level that supports a valuation above net asset value (NAV).

Speaking of NAV per share, that increased by 13% to R124.93 per share. Friday’s closing price of R160.33 represents a 28% premium to NAV per share.

Although revenue for the year was only up 5%, there was double-digit growth in the second half of the year. Revenue growth was ahead of cost growth, resulting in positive JAWS (the difference between the two) of 54 basis points.

Further down the income statement, credit impairment charges dropped by 52%, something to be expected after the horrors of 2020. Importantly, they are still higher than pre-pandemic levels.

It’s worth highlighting that Standard Bank Group is the third largest asset manager in Africa. The investment business grew headline earnings by 11% in 2021.

The South African banking business saw headline earnings jump by 172% and return on equity recover to 12.5%. JAWS was 198 basis points in a year of strong revenue recovery.

In other African regions (contributing 36% of group headline earnings), currency movements resulted in a muted performance in reporting currency. Headline earnings declined by 2% as reported and increased 6% in constant currency. Return on Equity at 18.2% is still very impressive.

Prospects for 2022 are encouraging from a banking perspective, with interest rate hikes expected in the markets in which Standard Bank operates. This helps drive endowment income for banks, something that has suffered during an environment of extremely low interest rates during the pandemic.

In South Africa, Standard Bank expects three more 25 basis point increases over the course of the year.

In line with other macroeconomic commentary I’ve seen (as well as common sense), the conflict in Ukraine is a risk to further rate hikes i.e. may result in fewer hikes than the market was expecting. Standard Bank luckily has limited direct exposure to Russia and Ukraine, but ICBC does have exposure to emerging markets and commodities businesses that are being impacted.

Non-interest revenue will be driven by activity-related fees (e.g. loan origination fees) that will hopefully more than offset an expected decrease in trading revenues year-on-year.

With a continued focus on costs, the bank hopes to deliver another positive JAWS result. Credit impairments are expected to normalise, with a credit loss ratio at the lower end of the through-the-cycle range of 70 to 100 basis points.

Shareholders should note that the acquisition of Liberty Holdings minorities was completed recently and Liberty delisted on 1 March. Integrating these businesses will be a priority. Between Liberty and Standard Bank, there is over R1.3 trillion in assets under management and R73 billion in gross written premium across the short-term and long-term businesses.

Headline earnings per share (HEPS) was R15.73 and the dividend per ordinary share is R8.71. This is a trailing yield of 5.4% on Friday’s closing price. The final dividend of R5.11 per share will be paid in April.

Sanlam has released its results for the year ended December 2021. The base period covers the worst of the pandemic, so keep that in mind when assessing this result. The key takeout from this result is that operating profits have returned to pre-pandemic levels.

I’ll start with the dividend, something that Sanlam prides itself on. If you are an investor who places importance on regular dividends, then Sanlam makes a strong case for being on your shortlist. The company has been an exceptional source of dividends over the years and declared a final dividend of 334 cents per share for this financial year, up from 300 cents per share in 2020.

This is a trailing dividend yield of roughly 5%, which is substantial for a group of Sanlam’s size and resilience.

Delving into the results, we see the net result from financial services up 13% and net operational earnings up 23%. At diluted headline earnings per share (HEPS) level, the increase is 27%.

The core business has put in a solid year, with new business volumes up 14%, net fund inflows 27% higher and value of new covered business significantly higher by 44%. Importantly, new covered business margin has also increased (from 2.58% to 2.87%).

Sanlam’s equity value per share is R64.44, up from R59.20 the year before. The company is trading at a slight discount to book value. Return on group equity value per share was 13.9% in 2021.

Depressingly, Sanlam includes a note in the outlook section regarding an expectation of further waves of infection. Modest discretionary reserves will be maintained in relation to this risk.

Sanlam does not expect the new business growth rates achieved in 2021 to be repeated in 2022. The group also expects equity markets to normalise in 2022 after a major recovery year in 2021, which will also impact growth rates.

The share price jumped nearly 6% in morning trade, as the market showed its appreciation for the consistency of this financial services giant.