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RMI maps growth beyond Africa

Investment group’s strategy will be to narrow its focus to non-competing champions of short-term insurance in the right countries

Garth Theunissen Investment Writer theunisseng@businesslive.co.za

Rand Merchant Investment Holdings (RMI) is weighing geographic expansion beyond Africa as it seeks to diversify its portfolio and tap revenue outside its home continent after the unbundling of its stakes in insurers Discovery and Momentum Metropolitan.

Rand Merchant Investment Holdings (RMI) is weighing expansion beyond Africa as it seeks to diversify its portfolio and tap revenue outside its home continent after the unbundling of its stakes in insurers Discovery and Momentum Metropolitan.

The group said on Monday it would unbundle its 25% stake in Discovery and a 27.3% holding in Momentum Metropolitan to narrow its focus on short-term property and casualty insurance, which it would continue to drive in SA via its 89.1% investment in Outsurance.

RMI will also issue as much as R6.5bn in new shares to help pay down almost R12bn in debt.

Unbundling from Discovery and Momentum Metropolitan, which provide both long- and short-term insurance, not only allows it to reduce its holdings in businesses that compete with each other in the same market but also enables it to diversify its geographic presence.

RMI CEO Herman Bosman told Business Day that the group’s strategy will be to invest in unlisted, non-competing “local champions” of short-term insurance, which provides cover for possessions such as cars and property. That narrowing of focus is what will force RMI to look beyond Africa, where car and household insurance penetration is relatively low.

“We don’t want to exclude SA it’s still our backyard,” said Bosman. “We’re not abandoning it, but we have to be realistic in terms of our concentration in this market, which is one of the reasons that drove us to unbundle. We don’t want to be competing with ourselves.”

Bosman said RMI applies various “filters” when assessing new potential investments, one of which is the scale of the target market, both in terms of the size of its economy and the number of insured vehicles. For example, both SA and Nigeria have about 12-million cars, but the former has a lot more insured vehicles, largely due to the availability of bank finance to drive new vehicle sales.

“The moment you finance your car in this country you’ve got to take out insurance,” said Bosman.

When asked if there are other African countries with high car ownership and vehicle insurance penetration rates that may warrant an investment, Bosman answered in the negative.

“Apart from Nigeria there aren’t any others in Africa, so the answer is probably no,” he said.

“We probably want markets that are larger than SA ... maybe slightly smaller, but call it the top 40 in the world. This is a very country-driven industry. You need to first and foremost pick the right countries, and then see if that local champion is available.”

Seeking a suitable shortterm insurance champion in another market forms part of RMI’s post-unbundling goal to reposition itself as a company with a portfolio of collaborative, non-competing property and casualty insurers. It already has a presence in Australia thanks to YOUi, which is a subsidiary of Outsurance, and in the UK via its 30% stake in Hastings.

Bosman said adding new markets to that portfolio will be done through unlisted entities as this is crucial to help RMI remedy the steep discount to which it trades on the JSE relative to the net asset value of its underlying assets, a phenomenon that has bedevilled investment holding companies ranging from PSG to Naspers. That also means that a potential separate listing for Outsurance is out of the question.

“The moment you list an Outsurance you open up multiple entry points [into the share],” said Bosman. “The moment you have a MMH [Momentum Metropolitan] or Discovery that’s listed and you can come straight into them then you find the discount being very acute.”

Potential target acquisitions may be early stage insure-tech companies. Bosman said he sees potential for building a more international version of RMI’s AlphaCode, which essentially acts as the group’s venture capital arm given its investments in emerging fintech companies such as Prodigy Finance,

Merchant Capital and Luno.

“We’re thinking of AlphaCode 2, whose focus will be more international but much more on insure-tech, property and casualty short-term insurance. We want to be open to finding the new Outsurance or Discovery and for that unfortunately you have to go earlier stage.”

Nevertheless, he said RMI’s “mature” investments will continue to constitute at least 95% of its portfolio for the foreseeable future as it focuses on trimming debt and providing shareholders with a predictable and higher dividend yield.

“You have to make sure that your portfolio diversification at early stage is nominal in the bigger scheme of things but hopefully very significant as things grow,” he said.

Still, RMI has no burning desire to rush out and close a new transaction. “We are an aspirational team but are at the same time very disciplined in how we think of our capital allocation,” Bosman said.

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2021-09-21T07:00:00.0000000Z

2021-09-21T07:00:00.0000000Z

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