Earnings call transcript: Old Mutual lifts returns in H1 2026 as profit falls

Old Mutual's H1 2026 results from operations per share rose 11%, while ROGEV improved to 12.7% from 4.1% and normalized RONAV reached 12.6%, marking the first time both return measures exceeded the group's estimated 12.5% cost of capital. Adjusted headline EPS fell 27% due to below-normalized shareholder investment returns, while catastrophe losses of ZAR376 million cut Old Mutual Insure profit by 25%. The group raised its dividend 8.1%, approved a ZAR1 billion share buyback, and reported OM Bank deposits of ZAR1.6 billion as it targets 2.5-2.8 million customers by 2028. Shares rose 0.33%, reflecting a constructive but measured investor response to improved operating returns and capital distributions against earnings volatility.

Analysis

OML’s investable inflection is not the reported earnings line but whether return metrics can remain above the cost of equity as restructuring savings annualize. Crossing that threshold makes incremental buybacks economically accretive rather than merely distributive, particularly if the shares continue to trade below embedded-value proxies. The near-term multiple catalyst is evidence that the remaining cost program converts into lower expense ratios and higher normalized RONAV, rather than being absorbed by bank investment or distribution spend.

The principal earnings-quality risk is that asset-liability positioning, alternatives realizations and mortality/market variances are masking the underlying run-rate. OML Investments’ non-annuity income is explicitly timing-dependent, while the bank’s early deposit base appears concentrated in migrated balances rather than independently sourced transactional deposits; headline customer growth therefore should not be equated with durable funding economics. Watch lending growth, active-customer conversion and credit-cost formation over the next 1-3 reporting periods before assigning strategic value to the bank.

Second-order pressure comes from South African household stress: elevated retirement withdrawals can reduce assets under management and weaken cross-sell economics, while higher catastrophe frequency can erode short-term-insurance margins despite pricing and data initiatives. Conversely, a sustained higher-rate environment may support reinvestment yields and banking net interest income, but can also intensify consumer arrears and lapse risk. The consensus likely underweights how quickly capital return capacity could improve if subsidiary remittances arrive as planned, but also overweights the mechanical significance of a small buyback without proof of recurring cash conversion.

A re-rating case needs normalized RONAV toward the mid-teens, demonstrable cost drop-through, and no material deterioration in credit or catastrophe claims over 6-18 months. It is falsified by normalized returns falling back below cost of capital, weaker subsidiary remittances, bank losses exceeding the planned capital envelope, or insurance margins slipping below target after weather normalization.

Key Decisions for Investors

• Accumulate OML on weakness over a 6-12 month horizon, sized modestly until FY2026 cash remittances are verified. Base case is a valuation re-rating from sustained value creation plus capital returns; exit/reduce if normalized RONAV falls below 12.5% or management cuts the capital-return framework.
• Use the next operating update as a gating catalyst: add only if OM Bank discloses improving active-customer mix, organically sourced deposits and controlled credit costs. Treat customer-count growth without funding and lending monetization as a watch item, not a reason to underwrite bank value.
• Pair long OML versus a broad South African financials proxy only after confirmation that cost savings are reaching operating margins; this isolates execution improvement from rate and local-equity beta. Close the spread if insurance catastrophe losses recur or asset-management performance fees fail to normalize.
• Monitor the OMLACSA upstream dividend and year-end discretionary-capital balance over the next 3-6 months. A larger-than-expected distribution/buyback would support the upside case; capital retention for bank growth without a credible path to profitability is the key negative surprise.