Peter Moyo, CEO of Old Mutual.
  • Allan Gray now owns 10% of Old Mutual, which has been hit by a battle over the ousting of its CEO Peter Moyo.
  • The investment manager is hoping that the board will win, and that Moyo will have to leave without compensation.
  • Worst case scenario, he's reinstated - and that a split opens up among Old Mutual staff, Allan Gray says.
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Not deterred by the bloody corporate battle at Old Mutual, the investment manager Allan Gray now owns more than 10% of the life insurer on behalf of clients.

Old Mutual CEO, Peter Moyo, was fired in June after accusations involving a company he founded. Old Mutual owned a big stake in the company, and was owed a large payment in dividends. While this remained unpaid - Moyo received more than R30 million in dividends from the company, Old Mutual claims.

Moyo, for his part, claims his relationship with Old Mutual chair Trevor Manuel started to deteriorate after he pointed out that a company, which Manuel chaired, stood to benefit financially from the group’s massive restructuring.

Last month, a court ruling forced Old Mutual to take Moyo back as CEO - at least temporarily, as the legal battle continues.

“We hope that the courts rule in Old Mutual’s favour and that Peter Moyo leaves the group without a large financial settlement,” says Jacques Plaut, portfolio manager at Allan Gray.

For Plaut, the worst case scenario would be that Moyo is somehow reinstated. But he believes this is an unlikely outcome.

“Another bad outcome would be if a split develops within Old Mutual between employees that are sympathetic (to) Peter Moyo, and those who are not,” says Plaut.

Since the battle between Moyo and Manuel erupted, Old Mutual’s share price has lost almost a fifth of its value.

Allan Gray believes it’s now trading at a large discount to what the company is really worth (its “intrinsic value”).

Old Mutual is currently trading around R18.  Its stake in Nedbank alone is worth R5, and its other investments and cash worth more than R7 per Old Mutual share. This leaves R6.

“This means the ‘operations’ (funeral policies, insurance, savings products, infrastructure investments) are valued at an implied R6 per share,” says Plaut.

“We think the operations produce about R1.30 of earnings after tax in a normal environment, so the implied multiple [price earnings ratio] is less than 5 times (R6/R1.30).”

A price earnings ratio gives an indication of whether a share is cheap or not: it calculates what investors are willing to pay for a rand of the company’s profits. A low number can indicate that a share is trading at cheap levels. The implied multiple is less than half the JSE average of 11 times. 

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