Equity Analysis on Old Mutual Plc.
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Equity Analysis on Old Mutual Plc.1 Qualitative analysiscompany profileOld Mutual began in Cape Town in 1845 as South Africa’s first mutual life insurance company, offering financial security in uncertain times. Today, 172 years on, Old Mutual is made up of four strong businesses operating successfully in their respective markets and enabling positive futures for their stakeholders. (Old Mutual Plc Annual Report, 2016). [pic 1]Source: Old Mutual Plc. Annual Report (2016)Figure 1 Four strong independent businesses with continuedcollaboration between OMEM and Nedbank.Old Mutual plc is a United Kingdom-based holding company. The Companys business activities include life assurance, asset management business, banking, and property and casualty. The Companys segments include Emerging Markets (Financial Times, 2017). It had more than 16 million customers and £303.8 billion assets under management as of 31 December 2015 (Old Mutual. Retrieved 9 April 2017). It is listed on the London Stock Exchange and Johannesburg Stock Exchange and is a constituent of the FTSE 100 Index (Sunday Times Retrieved 8 June 2012). Through its core business, the company achieved £1,216 million operating income compared to £1,201 million in 2015 in global. What’s more, an increase of 41.6% in revenue had been witnessed in 2016 than 2015. Apart from that, as can be seen from Figure 1 below, Old Mutual has a higher growth of revenue than FTSE 100 from 2008 to 2016 (Old Mutual Plc Annual Report, 2016).Table 1 Divisional Analysis of Old Mutual Plc.Adjusted operating profit（AOP）Growth rateEmerging Markets£619m+1%Ned Bank Group£799m+6%Wealth£260m-15%OMAM£143m-5%Source: Old Mutual Plc Annual Report(2016)[pic 2]Source: Old Mutual Plc. Annual Report (2016)Figure 2 Performance graphs of Old Mutual Plc.Porter’s five forces for financial service sector(1) Bargaining Power of SuppliersThe suppliers mainly include IT manufacturers, software companies and reinsurance companies.Some insurance companies need for their product and service requirements tailored specific computer system. For example, the insurer is to use some special software in a computer to manage risk, the type of system is complex, usually associated with the Internet data, a safe and reliable manufacturers of information communication technology is very necessary, the supplier is generally a renowned companies.Life insurance companies are willing to spend money to train employees and new systems, and if switching providers meet certain obstacles, it will increase the power of suppliers.Although many life insurance companies have their own it departments, few make meaningful integration, which further enhances the power of suppliers.To reduce underwriting risk, the insurer also needs the services of reinsurance companies.Overall, suppliers have a strong presence in the life insurance market.(2) Threat of Substitutes
People have a lot of choices to invest their money.Buying Insurance, Deposit, buying financial products. Deposit and investment includes mutual investment and direct investment in property or stocks. In addition to this, will is also a way dealing with risks after the death to protect family. Old mutual has a comprehensive financial market layout, which can provide a variety of financial products for consumers. The Top Employers Institute announced at a gala dinner last night that Old Mutual has secured the No.1 slot in the financial services and insurance categories for the fifth consecutive year on the African continent overall. As a result, the threat of substitutes can be very low.(3) Bargaining Power of BuyersIn South Africa, Latin America and Asia, consumers have many options to choose from when buying financial products, because in these areas, the financial sector had a very good development, it enhanced the power of the buyers, however, due to the Old Mutual holds a top position in South Africa for many years, which might weaken the power of the buyers to some extent, so the power of the buyers is general.(4) Threat of New EntrantsPotential competitors meet a low-level barrier of entry when they try to expand their business into financial industry. But new entrants have to decide in what ways they enter in, because different firm scale brings different benefits and risks. Small firm scale may increase risk for new entrants.Well-known companies in the financial sector need a good reputation, consumers approbate, and generally provide a wide range of services.large portion of the risk for potential competitors comes from the financial industry itself.Its hard to be successful in repeat business on the market, which means its important to develop new customers, and whether there is a good sales network is the key to guarantee future benefits. For example, the main business of the Old Mutual is in the region of Asia, Africa and Latin America. In 2016, the AOP of business in Asia and Latin America was 619 million pounds, and AOP of business in Africa was 799 million pounds, which makes the Old Mutual an influential company in those areas. So, Overall, threat of new entrants is low.(5) Competition in the industryAlthough The Old Mutual has its traditional advantages in Asia, Africa and Latin America. But Following the growth day by day of regional economic, half of the bric countries are in these areas, it faces a lot of competition and challenges.In particular, Asias economy is growing rapidly and old mutual can easily be defeated by other local companies if it doesnt have a good business strategy, so threat of competition is high.Competition analysis of Old MutualTable 2 SWOT analysis of Old MutualStrengths1. One of the largest diversified financial services groups in Southern Africa, with a broad spread of businesses spanning universal banking, life insurance and long-term savings, short-term insurance and asset management.2. Old Mutual clearly has a leadership position in both of the main insurance segments in South Africa3. Old Mutual has a good track record of acquiring and incorporating new businesses4. Old Mutuals companies have the advantages of broad ranges of products, multiple distribution channels and strong brandsWeaknesses1. Not fully escaped the constraints and challenges that are associated with its home market2. Face competition from rivals who have at least most of the same advantages3.Presence of multi-national insurance companies in emerging marketsOpportunities1. Further product innovation2. Further expansion into Sub-Saharan Africa3. Further development of new distribution channels and improved productivity of existing channels.Threats1. Potential, but unlikely, turmoil in global financial markets2. Fragility of the South African economy3. Unanticipated increases in costs as a result of regulatory changes