Should I Buy Old Mutual Plc?

I am out shopping for shares again. Should I add Old Mutual (LSE: OML) to my basket?

Victorian values

The name Old Mutual offers the promise of solidity in a changing world. Founded in South Africa in 1845, it is now the fourth-largest life company on the FTSE 100, and making great strides south of the Sahara. Its recently published half-yearly results pleased the market, and now I’m asking, should I buy it?

Last time I looked at Old Mutual, back in November, it was cutting its exposure to Europe in favour of fast-growing Africa. As well as its base in South Africa, it had a strong presence in Botswana, Zimbabwe and Nigeria, and was looking to expand into west and east Africa. I suggested that this was a safe way for armchair investors to explore Africa from the comfort of the FTSE 100, but ironically, the UK has been the biggest concern lately, with investors worrying over how the UK’s financial advice fees overhaul, the Retail Distribution Review, will affect its margins. The share price has been more volatile than I would have expected, but it is still up nearly 13.6% over the past 12 months, just pipping the FTSE 100 at 12.3%.  

African explorer

Old Mutual has recovered lately, helped by a positive first-half interim statement, which reported a 14% rise in adjusted operating profits to £801m. Highlights included group net client cash inflows of £9.1bn, up from £3.5bn in the first half of 2012, and a 3% rise in funds under management to £289bn. Earnings per share (EPS) rose 22% to 9.3p. Perhaps the biggest news was a 49% rise in gross sales from emerging markets (ex-South Africa), as Old Mutual expanded its footprint in Ghana, Nigeria and Kenya. If you’ve dropped the BRICs, but are still searching for new investment frontiers, this could be a good way to play sub-Sahara. And a balanced way, because Old Mutual’s US asset management business also had a strong first half.

The future could be a little stickier as markets brace themselves for QE tapering, a point that group chief executive Julian Roberts acknowledged. The prospect has already hit emerging market currencies, with the rand down 16% against the dollar and 14% against sterling. The IMF has downgraded forecast real GDP growth rate for South Africa to 2%, although across sub-Saharan African GDP should grow 5.1% this year, up from 4.9% last year.

Mutual respect

Old Mutual’s valuation doesn’t look challenging, at 10.8 times earnings. This makes it cheaper than Legal & General (14.3%) and Prudential (14.9%), but then, it has failed to match their recent blistering growth. I was disappointed by Old Mutual’s 2.9% yield in November, but it has since climbed to to 3.7%, partly thanks to the recent 20% hike in the interim dividend of 2.1p. It is bettered by L&G, which yields a tasty 3.86%, but beats Prudential’s undernourished 2.56%. Forecast EPS growth of 12% in 2013 and 11% in 2014 is forecast to lift that yield to a crunchy 4.9%.

I liked Old Mutual last year, and I like it today. This could be one to buy next time QE tapering trashes market confidence. But it isn’t good enough to feature in our special report 5 Shares To Retire On. This free report by Motley Fool share analysts names five FTSE 100 favourites to secure your retirement. To find out more, download this report now. It won’t cost you a penny, so click here.

Harvey owns shares in Prudential. He doesn’t own shares in any other company mentioned in this article.