Taking Stock - Santam is working through business interruption claims

In today's taking stock we discuss, Santam is making good progress in handling contingent business interruption.

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MARKET COMMENTARY

SOUTH AFRICAN MARKET COMMENTARY

Shares on the Johannesburg Stock Exchange (JSE) softened on Thursday as investors treaded cautiously after riots and looting in the country receded but the US market, which affects the performance of almost 80% of local stocks, retreated from record highs. The benchmark All-Share index dropped by 0.53% to 67,539 points and the Top 40 index lost 0.51% to 61,439 points. The losses were broad-based as almost all major sectors retreated from the previous day's gains, with commodities and construction stocks posting the biggest fall of over 1%.

 

EUROPEAN MARKET COMMENTARY

European shares closed lower on Thursday, dragged down by energy companies amid a drop in crude oil prices and a profit warning from Siemens Gamesa. The pan-European Stoxx 600 closed down by 1% provisionally, with oil and gas stocks tumbling 2.7% as crude prices extended losses Thursday after OPEC+ reportedly reached an agreement on future oil production levels. Investors in the UK were reacting to comments from Bank of England Deputy Governor Dave Ramsden, who said Wednesday that the central bank may need to consider tightening policy sooner than expected as inflation could rise to 4% later this year.

 

US MARKET COMMENTARY

The S&P 500 dipped on Thursday even as second-quarter earnings results continued to beat expectations. Morgan Stanley’s second-quarter earnings report topped analysts’ expectations Thursday morning, yet its shares closed just 0.18% higher. The bank’s stock was up 35% this year going into the results. For the 18 S&P 500 companies that beat analyst estimates for second-quarter earnings this week, the average earnings-per-share result was 18% higher than expected. But those companies saw their shares fall 0.58% on average after reporting.

 

ASIAN MARKET COMMENTARY

Shares in Asia-Pacific fell this morning as the Bank of Japan held steady on monetary policy. Japan’s central bank downgraded its real GDP forecast for 2021 to 3.8% growth, as compared with the 4% growth forecast made in April. The Bank of Japan also kept its yield curve control target at -0.1% for short-term interest rates and 0% for 10-year Japanese government bond yields. Yield curve control is a policy to stimulate the country’s economy, and entails keeping the 10-year Japanese government bond yield at zero.

 

CURRENCY MARKET COMMENTARY

The rand fell on Thursday, as pockets of civil unrest remained following days of violence that has destroyed hundreds of businesses and left more than 100 people dead. At the close of the session, the rand was trading around R14.55 to the dollar, 0.47% weaker. The dollar headed for its best weekly gain in about a month, supported by buying on investor worries about quicker US interest rate increases and by rising virus infections, while a hot inflation reading lifted the New Zealand dollar.

 

COMMODITIES MARKET COMMENTARY

Gold prices were headed for the fourth straight weekly gain this morning, as investors took comfort from Federal Reserve Chair Jerome Powell's stance that the US central bank would continue to support the economy and inflation will be transitory. Oil prices fell a third day today as supply concerns continued to haunt the market, with OPEC likely to add more barrels amid expectations that demand is returning as more countries recover from the pandemic.

LOCAL COMPANIES

Standard Bank (SBK) -2.8%

Standard Bank is to buy the rest of insurer Liberty Holdings that it does not already own for R10.6 billion ($728.75 million), creating a financial conglomerate that will expand across the continent. Standard Bank already has a 54% stake in insurer and asset manager Liberty, whose shares soared 25% on the news. Africa’s largest bank by assets said the move was a natural progression in their relationship that was in line with its strategy of offering a wider set of financial services to its customers across the continent. “This will be a whole that will be much greater than the sum of its parts,” Chief Executive Officer Sim Tshabalala said. He said the deal would also bring capital efficiencies and growth opportunities, with insurance penetration in African markets at just 17% or lower. The two groups said the merger would give them superior scale and more ability to capitalise on one another’s customer bases, complimentary products and technology. Liberty Chief Executive David Munro said that the deal would also give Liberty the chance to tap back into markets elsewhere on the continent, something the company has attempted previously. If the deal goes ahead, Liberty shareholders, who hold some 119 million shares, will get 0.5 Standard Bank shares and R25.5 in cash for each Liberty share, worth R89.46 per share in total. That represents a 32.6% premium to Liberty’s closing price on July 14, the companies said.

 

Santam (SNT) -1.9%

It’s nearly 17 months since the start of the first, very harsh, Covid-19 lockdown. It has been a difficult time for business owners, often aggravated by the delays of insurance companies in settling claims for losses suffered due to business interruptions. An update by Santam on the progress of settling business interruption claims tried to change this perception. “Santam is making good progress in handling contingent business interruption [CBI] claims,” says Santam CEO Lizé Lambrechts. “We have made payments to approximately 60% of policyholders that have submitted claims. “Since January 2021, Santam has paid R600 million to policyholders, in addition to the R1 billion paid in interim relief to 2 500 policy holders in August 2020,” she says, adding that a number of the 2 500 clients who received interim relief have subsequently received additional payments. Santam notes that most of these payments were to small, medium and micro-sized businesses in the hospitality, retail and leisure sectors. These sectors were hit particularly hard by the first severe lockdown as well as subsequent restrictions limiting their operations. The figures disclose that 3 252 policyholders notified Santam of their intention to submit claims, which Lambrechts notes represents 2% of the company’s commercial and corporate clients. Of concern, she says, is that Santam has received claims from only 1 851 policyholders, who represent 57% of the number of clients who indicated that they would submit a claim. Final or interim payments have been made to 1 094 of these clients and the remaining 757 claims are currently being assessed. It says it also simplified the claims process for businesses where the sum insured does not exceed R10 million per annum and the indemnity period is not greater than nine months.

INTERNATIONAL COMPANIES

Morgan Stanley (MS) +0.2%

Morgan Stanley on Thursday posted second-quarter profit and revenue that exceeded analysts’ expectations on strength in equities trading and investment banking. While rival banks reported a steep slowdown in fixed-income trading revenue — a dynamic that ensnared Morgan Stanley’s bond traders as well — the bank’s strength has traditionally been in its equities-trading franchise, the biggest in the world. That business outperformed in the second quarter, producing $2.83 billion in revenue, more than $400 million over what analysts had expected. It made up for the shortfall in fixed income, which produced $1.68 billion in revenue, below the $2 billion estimate. Stock trading has thrived in the second quarter for Wall Street, as have wealth management businesses, both of which have benefited from high asset values and robust IPO activity. Another area that has flourished is investment banking, propelled by robust merger activity and related financings. Like rival Goldman Sachs, Morgan Stanley posted strong investment banking results, with revenue of $2.38 billion exceeding the $2.1 billion estimate. That helped the firm’s institutional securities business, which houses its trading and advisory operations, post $7.1 billion in revenues, about $350 million more than expected.

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Media, Sasfin Wealth

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