FY23: a creditable performance in a tough environment

#themes: coherent strategy and effective execution delivering strong dividend flow

Event: Alex Forbes has released annual results to March 2023; operating income rose 8%, to R3 478m, and normalised HEPS increased 31%, to 47.7c. A final dividend of 27c (+35%) was declared. 

Divisional performance: Retirement consulting delivered 15% growth in operating income (OI) from organic sources (8%), with the balance from the acquisition of EBS international; Umbrella closing AUM was up 7%. Healthcare consulting OI was also up 15%, with good contributions from Medical Aid broking and the Health Management business. Investments OI increased 3%, in line with average AUM growth; the blended institutional margin improved slightly, to 27.9bps, from 27.7bps. Individual consulting OI was up 4%, helped by 9% growth in new business but hampered by a decline in the preservation rate to 52% as members struggled with increasingly tough economic conditions.

Expenses, including those from acquisitions and capacity-building, were up 8%, and the cost-to-income ratio decreased marginally, to 77.4%, from 77.6%. Personnel costs rose 10% and technology costs were up 21%. 

Profit before tax rose 11%, helped by a 48% increase in investment income thanks largely to higher average interest rates and lower finance costs. A lower effective tax rate boosted continuing operations’ post-tax profit by 16%, to R553m. Discontinued operations’ profit of R161m (FY22: R29m) was almost entirely due to the profit on disposal (R153m) of the AFICA business to Sanlam.

Balance sheet strength and capital management: Regulatory-required capital requirement fell 7%, to R1,428m, now covered 2.1x by available regulatory capital. The annual dividend (interim plus final) of 42c is 31% higher than FY22, in line with the growth in normalised HEPS.

Conclusion: We view these results as highly creditable given the difficult environment in which the group operates. The impact of corporate action, to reconfigure the operating model undertaken over the last few years, is starting to show up in the numbers – and the group is confident that the benefits will increasingly be evident in future reporting periods. The final dividend declared handsomely beat our expectations, reflecting the very strong capital position of the group and the commitment to effective capital management. We will review earnings forecasts, and the investment case, after the presentation and meetings with management.

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