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Only a sage can explain this curious ratingNOBODY can explain why Sage Group trades on a price-earnings ratio of 15 when its six closest peers trade on average at twice that rating. Lest underperformance be forwarded as a reason, Sage came 43rd in last week's Business Times Top 100 Companies survey, which measures total return to shareholders over five years. Two of its peers were ahead, three behind and one has not been listed long enough to count. Sage's headline earnings have climbed by a compound annual rate of 22,8% over five years and dividends by 22%. In the six months to September 1996, headline earnings rose 25,2% to 51,7c a share of which 31c was a dividend. Assets are now R5,6-billion, the Sage unit trusts are booming, share liquidity has improved, and the share has outperformed the JSE all-share index handsomely and the insurance index slightly over five years. Ownership is stable: public 36%, Mines Pension Funds 24%, Absa 14% and Sagecor 20% (Sagecor is equally held by Sage founder Louis Shill and Rembrandt, which holds another 7% of Sage directly). All shares vote equally, and Sage's level of disclosure exceeds that of other groups. So is a lack of understanding the reason behind the poor rating? It shouldn't be: the structure is simple. Sage Group owns Sage Life Holdings, which wholly owns five divisions and 50% of Sage Coronation Fund Managers. At the heart of the subsidiaries is Sage Life, which handles individual life, employee benefits, an education trust and family benefits as well as seven unit trusts. It also holds 21% of Universa, a 25% shareholder in Absa whose worth to Sage has climbed by 57% to R855-million in the 12 months to September 1996. Sage's other divisions are Specialised Insurances, FPS, Properties and Sage International BV. Chief executive Bruce Ilsley says the Absa and Coronation alliances are important - Absa not only as an investment but for marketing advantages while Coronation's investment returns add to the ability to attract new business. Shill, now non-executive chairman, has busied himself finding an opportunity for Sage to get into the American insurance market. During the year, Sage raised $30-million through an offshore placing and secured an American depository receipt listing as well as Seaq and Financial Times quotations to improve exposure. This week, Sage announced the purchase of Delaware-registered Fidelity Standard Life, into which an initial R70-million will be invested. Although it is the first SA life assurer to enter the American market, the move is by no means sudden. As long ago as 1977, Sage established Finplan of America Inc, a Dallas-based personal financial planning group, and in 1984 set up Independent Financial Marketing Group, whose prospects were dammed by economic sanctions. Earlier this year, IFMG was merged with Liberty Financial Companies to form one of the largest distribution outlets for life assurance and unit trust products in America, being contracted to 200 banks and institutions.
Fidelity Standard, with an asset base of $450-million (R2,1-billion), is licensed to write general life assurance and fixed and variable linked annuity business everywhere but New York State, where it is intended to establish a subsidiary. It can also write variable life business in 15 states. "Fidelity Standard is exactly what we sought and a R70-million investment is not the end of the world. We don't intend to be heavily invested. I expect the initial and development capital to amount to an investment of the eventual order of R200-million to R300-million. This will be 10% to 15% of the Sage group, and I will be a very disappointed man if that 10% or 15% does not produce the same profit as the balance of the group does in due course," says Shill.
Shill says Sage seeks simple, steady growth, chasing profits, not assets. Since it does not use paper for acquisitions, a weaker price-earnings ratio has not harmed it too much. "However, I would be the world's biggest liar if I said I was not miffed that Sage's rating is only half that of its peers." Shill says it is a poor bet to talk down life assurers. "The industry has a 250-year record of growth, profitability and stability, and I think there is a better future for life companies than at any time in the last 20 years." Sage added 20c to R18,20 after management made a convincing presentation of results and prospects. It can be safely bought at this price.
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