I am Marius Strydom and the title of my blog is Straight-talking Strydom. Why? The short answer is that this is what I do and what I have a reputation for. The long answer is a bit more boring, but allows me set the scene and establishes my “street cred”. If you don’t feel up for it, please skip to the last paragraph or straight to my second blog.
Let me tell you a bit about myself. After starting my working career in the life assurance industry and studying to be an actuary, I decided to give this up and move into the stock-broking industry to become an analyst. During my 14 years at Investec, BJM and Bank of America Merrill Lynch, I became a highly regarded life assurance analyst and successfully led teams doing analysis of financial companies in South Africa and the Emerging Europe, Middle East and Africa region. What was a constant during my time as an analyst was my firm commitment to independence and being a straight talker.
There were many highlights during my analyst career and I will share some of the most notable ones with you. In 1999, few people saw value in short-term insurers, despite them trading at below net asset value (that’s when you take all assets of the companies and deduct all their liabilities). I insisted that investors buy these stocks and today Santam is trading at 3.5 times net asset value. In 2001 and 2002, Sage started running into trouble and I was one of the few commentators that told people to avoid the stock. Eventually Sage collapsed and was taken out at very depressed levels by Momentum. In 2003, Sanlam was a much unloved stock, trading at deep discounts. I was a strong bull on Sanlam at that time and today, it is the most highly rated life assurer in the sector.
During 2003, 2004 and 2005 I did a great deal of work on the savings market in SA in my “Moneyflows” reports. I identified meaningful room for growth in assets, especially for retail asset managers. This has occurred convincingly over the past decade with retail asset managers taking meaningful market share from life assurers. Despite my views about expected life assurance market share losses, I still felt that they were overly cheap in 2006. I predicted that they would eventually trade at above embedded value (which is a valuation that the companies disclose, incorporating their net asset value and the value of their existing business). Although it took some time to manifest, all SA life assurers current trade at healthy premiums to embedded value.
In 2009, I wrote three pieces of research where I critically assessed the businesses of Liberty, Metropolitan and Old Mutual, making me quite unpopular with management teams. I identified mistakes that they had made and suggested positive actions to enhance the businesses going forward. Liberty subsequently addressed many of my concerns, Old Mutual took many of the steps that I suggested and Metropolitan merged with Momentum (after I had highlighted the likelihood of corporate action).
When I joined Bank of America Merrill Lynch, I had a broader role, which encompassed responsibility for all financial stocks in SA. I took this opportunity in 2011 to come up with a way of valuing all SA financial stocks using the same methodology, which made cross-sector comparisons (between banks, life assurers etc.) easier. In 2012, I initiated coverage on RMI with a Buy when it was trading below R14 per share. It rapidly started rising and today it is at R40 per share. Similarly, I was a strong supporter of Discovery under R40 per share and today it is R105 per share.
A key piece of research I produced in 2012, together with a colleague from Bank of America Merrill Lynch, was to call the top of the unsecured lending cycle and to recommend that investors sell ABIL, which was trading at R39 per share and Capitec, which was trading at R224 per share. Subsequently, ABIL’s share price collapsed and trading was suspended below R1 per share earlier this year. Capitec’s share price has hardly moved and today is at R228 per share.
Also in 2012, I was one of the first commentators to identify the entry-level market in SA (that is the bottom-end of the market where premiums are small) as well as African opportunities as two of the main drivers for potential growth for SA life assurers. These divisions have subsequently continued to grow strongly and are attracting increasing investment from companies.
Another important recommendation, which was helped by the fact that the same basis was used to value both sectors, was to encourage investors to buy the life assurance sector ahead of the banks sector in June 2012. By the time I left Bank of America Merrill Lynch a year later, the life assurers had outperformed the banks by 45%.
Finally, just before I left Bank of America Merrill Lynch in 2013, I identified 5 great reasons why SA life assurers remained attractive investments, which has been borne out subsequently.
I made my fair share of mistakes while being an analyst, with the most notable being that I was positive on Old Mutual in 2008 when the credit crisis hit and positive on Liberty in 2009 when its earnings collapsed due to many people cancelling their policies.
Over the past year, I stepped away from stock broking analysis to become an independent researcher. Assisted by a co-authors from the University of Stellenbosch and Deloitte, I produced groundbreaking research on how AIDS mortality in SA (that is how long people with AIDS are expected to live) has and will improve meaningfully and how this could lead to meaningful changes in the entry-level life assurance space in SA. This I will explore in more detail in my next blog.
Ok, deep breath. Welcome back to those that skipped the last few paragraphs. I intend to address issues in my blog that interest me and hopefully you, the reader. Some of these will be general, like my views on the SA economy, the potential for Africa to be the next global growth area, US politics, the geopolitical space in Eastern Europe, advancements on the biotech front, global warming, education, etc. Others will be more specific and will include AIDS mortality (how long people with AIDS are expected to live), the entry-level life assurance space (at the moment, people mostly buy funeral cover in this space), areas of interest in the SA financial sector, how to value companies, the relationship between listed companies and the investment community, etc. I greatly appreciate feedback and look forward to this journey with you.
Until next time, keep your talk straight!