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Advisers divided on Sanlam's discount shares
Many policyholders are betwixt and between as to whether to take up the discount share offer, writes LUCIENNE FILD
WONDERING whether to buy Sanlam shares at the 10% discount offered to eligible policyholders? It is no easy decision for uncertain policyholders. Even financial advisers and analysts are divided on what to suggest.
You have only a week left to make up you mind, sign your cheque and send off the application. Policyholder applications must reach Sanlam before 4pm on Monday November 23. A piece of advice: if you have decided to buy the discounted shares, try to hand-deliver your application form together with your cheque to a Sanlam office (25 are listed in the prospectus) as close to the deadline as possible. This gives you a chance to reconsider should the stock market take another cruel blow.
Deciding whether to take up the offer is complicated as you are committing yourself to buying the shares without knowing what you will finally pay. Sanlam set the provisional public offer price in a range of R5 to R7 a share. After the 10% discount, the price range falls to between R4.50 and R6.30. This can, however, change, and there is no guarantee the shares won't be available on the stock market for less than you paid for them. The final offer price will only be made known on the day of the listing, November 30.
Money canvassed a range of financial advisers and analysts for their advice to uncertain policyholders. Gary McCreesh, general manager of Nedcor Financial Planning, says buy, buy, buy - but only if you can spare the cash and have a long-term investment view of a minimum of five years. But while he considers Sanlam to be a solid company, he warns investors that markets remain volatile and are heading for more turbulence. There is real danger of the share price dropping once Sanlam lists. Dick Wood, deputy MD of consultancy Alexander Forbes, says that while the discount offer to policyholders appears to be attractive, there's no guarantee the shares will trade at a higher price, so no guarantee you will make money in the short term. A number of international companies which demutualised experienced a drop in share price after listing, because a huge number of policyholders sold their free and discounted shares. Wood says this could easily happen to Sanlam since the free shares that will be issued make up a large part of the total market capitalisation. "It's very risky to buy shares on a short-term view. And borrowing money is out. Someone who has the additional money available could look at buying shares at a discount as a long-term investment," says Wood. Adrian Clayton, fund manager and insurance analyst with Appleton Asset Management, says much depends on market conditions when Sanlam lists. Estimating the embedded value of Sanlam shares at about R8 a share in present conditions, Clayton says the shares can be expected to trade slightly higher than the embedded value for a while. This means policyholders who bought shares at a discount could realise a profit initially. However, Clayton does not see Sanlam as a long-term share. Since it's a riskier stock than most other insurers, he says, there is more reason to be wary in a volatile market. His concerns are that Sanlam's market share fell from 35% in 1989 to 25% last year; in the past two years new business has declined; and free reserves as a percentage of liabilities are low. Clayton's advice to policyholders? Buy Sanlam shares at the discount if you are comfortable with the risk, and sell soon after the listing. Tracy Devenport of Johannesburg-based Tracy Devenport Financial Services, considers Sanlam shares a worthwhile buy, provided you can spare the money and have a long-term view. "But never borrow even one cent to buy shares. And pay off your bond first." There are other stocks set to do better, but if you don't know which ones they are, go with the discounted Sanlam shares, she says. Kenny Silke of Cape Town's Silke Investment Corporation and Unit Trust Centre believes there is better value elsewhere. He does not advise policyholders to commit to the discounted shares. Robert Foster, financial consultancy Fincorp's regional manager for the Cape, says it's difficult to tell someone to buy without knowing the price of the shares. Also Sanlam's earnings track record is not very good, he says. "Your free shares provide you with entry into the market. Rather wait and see how the market values Sanlam shares. Then decide whether you want more, even if you don't get the discount. The market is so volatile, I don't advise anybody to jump in." Dave Mohr, economist with financial consultancy Citadel, says the company's clients are advised to take up the discount offer on Sanlam shares as they could represent value. "The chances are pretty good that the market share price will come out higher than the public offer price," he says. Barry Dubb, MD of financial consultancy Capital Corporation in Johannesburg, says you should consider three factors: merits of the investment, current market climate, and the size of your Sanlam investment relative to your portfolio.
Remember the basic investment guidelines:
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