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Discovery (DSY) will be the stock in focus: (Price at time of writing: R119.24 as 3 April 2016)
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Background and overview of Discovery (DSY)
Discovery revolutionized the health insurance industry in South Africa with their vitality rewards offering. Which offers consumers rewards based on healthy living and behaviour (points for gym, eating healthy and more recently for driving well)
When Discovery was established as a small specialist health insurer two decades ago, we made a clear and profound promise: to make people healthier. Driven by constant innovation over the years, we created a multifaceted, integrated financial services organisation and expanded our original promise to include enhancing and protecting lives. Throughout our constant innovation and ongoing growth, our founding ideal has remained unchanged – making people healthier and enhancing and protecting their lives has evolved into our core purpose that frames our ambition, strategy and business methodology.
Our core purpose is expressed in each of the health and financial products we offer to our nearly six million clients across four continents. Discovery’s products are focused on some of the most fundamental areas of people’s lives – their health and wellness and the financial security of their families. These are the critical areas where we aim to add significant value and make a real difference in the lives of our clients. We have through continuous innovation designed pioneering products and services that help our clients to improve their health and wellness, protect their financial future and enhance the quality of their lives. This client-centric approach lies at the heart of the way we do business and is the common thread running through all our products.
By using powerful financial and behavioural structures that meet people’s complex needs in sustainable ways, Discovery’s products and services have been created to deliver real value, protection and efficiency for our clients. This stimulates consumer demand for our products, which in turn leads to rapid organic growth and superior returns for our shareholders. Looking to the future, our goal is to be one of the best insurance organisations in the world, one that is renowned for excellence, innovation and financial strength.
Their core divisions include:
When Discovery was established as a small specialist health insurer two decades ago, we made a clear and profound promise: to make people healthier. Driven by constant innovation over the years, we created a multifaceted, integrated financial services organisation and expanded our original promise to include enhancing and protecting lives. Throughout our constant innovation and ongoing growth, our founding ideal has remained unchanged – making people healthier and enhancing and protecting their lives has evolved into our core purpose that frames our ambition, strategy and business methodology.
Our core purpose is expressed in each of the health and financial products we offer to our nearly six million clients across four continents. Discovery’s products are focused on some of the most fundamental areas of people’s lives – their health and wellness and the financial security of their families. These are the critical areas where we aim to add significant value and make a real difference in the lives of our clients. We have through continuous innovation designed pioneering products and services that help our clients to improve their health and wellness, protect their financial future and enhance the quality of their lives. This client-centric approach lies at the heart of the way we do business and is the common thread running through all our products.
By using powerful financial and behavioural structures that meet people’s complex needs in sustainable ways, Discovery’s products and services have been created to deliver real value, protection and efficiency for our clients. This stimulates consumer demand for our products, which in turn leads to rapid organic growth and superior returns for our shareholders. Looking to the future, our goal is to be one of the best insurance organisations in the world, one that is renowned for excellence, innovation and financial strength.
Their core divisions include:
- Discovery Life
- Discovery Invest
- Discovery Health
- Discovery Insure
- Discovery Vitality
- Ping An Health in China
Financial review:
The graphic below shows the contribution of some of DSY's operating divisions (and the value of new business from these divisions as well as their contribution to normalised operating profit.
As can be seen from the pie charts Discovery Life is by far the biggest contributor to DSY's overall operating profit, bringing in almost 47% of total operating profits. PingAn, Discovery Insure and other is not included in the bottom pie chart as these are gouped as still loss making. Main contributor to new business coming in is Discovery Health, bringing in more than 53% of overall new business for the group.
Their business model of integrating various services into one platform and reward system, known as Vitality has worked wonders for them over the last number of years, with thousands of people being drawn to their products due to the value added services they supply. They are looking to roll out something similar in one of the most populous nations on earth, China. PingAn obtained new business from PingAn at R752million. Showing an increase of 77% compared to the previous year. So it looks like this venture is gaining traction. Which should bode well for Discovery in future, if they can make PingAn as succesfull in China as they have some of their other brands in South Africa.
Diluted earnings per share for the 6 months ended came in at R2.77 (assuming constant growth full year earnings will come in at R5.44). Putting them at a current PE if 21.8. This is a relatively stiff PE ratio when compared to the market as a whole. They do provide a critical service in terms of health and life insurance. Cash generated per share came in at R6.66 a share. Which is very solid. Showing good money coming into the company.
Their business model of integrating various services into one platform and reward system, known as Vitality has worked wonders for them over the last number of years, with thousands of people being drawn to their products due to the value added services they supply. They are looking to roll out something similar in one of the most populous nations on earth, China. PingAn obtained new business from PingAn at R752million. Showing an increase of 77% compared to the previous year. So it looks like this venture is gaining traction. Which should bode well for Discovery in future, if they can make PingAn as succesfull in China as they have some of their other brands in South Africa.
Diluted earnings per share for the 6 months ended came in at R2.77 (assuming constant growth full year earnings will come in at R5.44). Putting them at a current PE if 21.8. This is a relatively stiff PE ratio when compared to the market as a whole. They do provide a critical service in terms of health and life insurance. Cash generated per share came in at R6.66 a share. Which is very solid. Showing good money coming into the company.
Valuation:
Based on DSYs financial results, the markets they operate in and the economic environment they find themselves in, we value DSY at between R131.02 and R132.6 a share. Thus at their current price we do feel they do offer some value. Especially if the PingAn in China gets a foothold in that market.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.