Sanlam Limited (SLLDY) Q2 2025 Earnings Call Transcript

Sanlam Limited reported strong H1 2025 results, with normalized net result from financial services and operational earnings both up 20%, significantly exceeding the 15% reported growth after adjusting for corporate actions and currency impacts. The group achieved robust profit and cash generation across all operating businesses, marked by exceptional assets under management growth from nearly ZAR 50 billion in net new client cash flow, and adjusted RoGEV and ROE above target. Despite an 18% reported decline in Value of New Business (VNB) (3% normalized) due to the Capitec JV termination, Allianz transactions, and a product mix shift to living annuities, Sanlam's integrations of Assupol and SanlamAllianz are exceeding synergy targets. With strong solvency and discretionary capital earmarked for Indian insurance transactions, the company expects a stronger H2 for sales and VNB, guiding full-year earnings within its ZAR 15-16.5 billion range, with further strategic updates anticipated at its October Capital Markets Day.

Analysis

Sanlam's H1 2025 results demonstrate robust underlying performance, which is significantly obscured by the complexities of recent corporate actions and currency effects. While reported net operational earnings grew by 15%, the normalized, like-for-like figure reveals a much stronger 20% growth, highlighting the core operational health of the business. The notable 18% decline in the Value of New Business (VNB) is a key point of concern, but on a normalized basis, the drop was a more manageable 3%. This was attributed to the one-off impacts from the Capitec joint venture termination and the SanlamAllianz transaction, alongside a cyclical product mix shift away from high-margin guaranteed annuities as long-bond yields declined. Counterbalancing this VNB pressure are exceptionally strong net new client cash flows, which added nearly ZAR 50 billion to assets under management, and key value creation metrics like the adjusted Return on Group Equity Value (RoGEV) which exceeded the group's target range. Strategically, the integration of Assupol is delivering synergies beyond initial projections, evidenced by a 23% rise in adviser productivity and an 85% reduction in churn. The group maintains a strong capital position with ZAR 9.2 billion in discretionary capital, a substantial portion of which (ZAR 5 billion) is earmarked for pending transactions in the high-growth Indian market. Management has confidently reaffirmed its full-year earnings guidance of ZAR 15-16.5 billion and anticipates an acceleration in sales and VNB in the second half.

Key Decisions for Investors

• Investors should focus on the 20% normalized earnings growth and strong net client cash flows as a truer indicator of operational health, looking past the headline figures distorted by M&A and FX volatility.
• Monitor for a rebound in Value of New Business (VNB) in the second half, as management's guidance for a recovery will be a key test of the thesis that H1 weakness was largely due to one-off factors.
• The upcoming Capital Markets Day in October is a significant catalyst, as the announcement of new financial targets and reporting changes could serve to rerate the investment case.
• Note that the elevated discretionary capital of ZAR 9.2 billion is primarily allocated for Indian expansion rather than shareholder returns, as management has explicitly ruled out share buybacks at this time.
• Given the positive early results from the Assupol integration, continued outperformance on synergy and efficiency targets represents a key source of potential upside to future earnings forecasts.