"155 million pounds is a lot of money, it will be funded from internal resources and an element of debt. 2.77 billion Rand, there is obviously a control premium there, the business as a collective is over 10 billion Rand. Discovery has a market cap total of nearly 62 billion Rand, clearly the market liked what they saw, the stock rallied 4.32 percent to settle at 104.5 ZAR, an all time high. Notwithstanding this, we agree with the companies sentiments, Vitality will continue to form a more important glue that sticks health and wellness together, enabling better profiling for life businesses."
If you did not get the email on Friday about the number change, here goes again: We have changed our telephone number with immediate effect to 087 985 0939. Thank you for your patience, if you battled to get through to us recently.
To market, to market to buy a fat pig. Did you see Shinzo Abe and Xi Jinping shaking hands yesterday? Foreign Policy, the website, called it: A really awkward handshake. A Youtube clip associated with a Bloomberg story was Xi Jinping and Shinzo Abe Share an Awkward Moment at the APEC Summit. The WSJ calls it ice cold. I call it progress, something that neither nation wants to do (concede to one another), they are meeting as a result of necessity. There is a long history of mutual distrust, throw Korea in (the South, the people without the tin hats), and it adds a new dynamic. The APEC summit is progress, the meeting of the Chinese and Japanese, albeit frosty, is necessary for all of us.
When people tell you that it is all falling apart, or that things are so bad, cast your mind back to when you were a kid. Think about relative inequalities then and relative inequalities now. Think about whether life is harder or easier, from a finance point of view, from the relative value point of view. A washing machine for your parents was not new, not a luxury, certainly it was for their parents. Life gets easier with technology, we only feel the impact now years later. These are mesofacts, things that change very slowly each and every day and only become noticeable when you cast your mind back. The quality of the internet five years ago (even though you would like it to be quicker), the quality of your handset five years ago, you simply forget all these things.
OK, so let us finish on singles day (biggest retail day globally) and Armistice day (all of 96 years ago) with the market performance right now, this morning. Locally we are flat here, the first hour has become something of a vacuum, the JSE could do worse than to delay trade to start at 10am and extend through to 6pm during the summer months here as a result of daylight savings in Europe and the US. Futures in that part of the world are marginally better, thanks to Alibaba and early sales forecasts for that singles day. Yes, it is really a thing.
Discovery hit the market with a huge announcement, firstly teeing us up around 7:30 in the morning with news of a conference call at 11:30, to share important developments surrounding its international business strategy. The announcement came at 11 on the dot, the release via the Stock exchange News Service that Discovery had agreed to purchase the final 25 percent of the holding company of PruHealth and PruProject from Prudential for the princely sum of 155 million Pound Sterling. This was a year ahead of an option to acquire the final amount from Prudential.
What happens from here with Prudential, and the joint ventures 800 thousand members? The current agreement provides Discovery with a favourable basis for the acquisition of the business, including a collaborative framework with Prudential for the smooth transition of members, and continued support for a period of time. The existing business will be rebranded to VitalityHealth for the private medical insurance business and VitalityLife in the life insurance market. You might have noticed if you were watching the cricket over in the UK, that although sponsored by our very own Investec, many of the background boards were Vitality with PruHealth branded.
As an existing business, the UK subsidiary as it were, generates 4.5 billion Pounds of annual revenue (80.4 billion Rand), EPS growth of 26 percent per annum since 2000. Yowsers. As Discovery says in the SENS announcement, if the business were listed it would be big enough to be in the FTSE 100. They speak about all the things that we know well with the Vitality model, getting to gold and then staying there for three years to enable all the discounts is the real goal of those Vitality enthusiasts.
The company notes the changing nature of the life and health business and the Vitality glue that sticks it all together: Discovery's model specifically takes this into account by incentivising engagement in wellness, actuarially and clinically determining the effect of engagement on mortality, morbidity and health risk, and pricing these effects dynamically into the insurance premium over time. The effect of the model is to create lower price points, attract better lives, induce behaviour change, and mitigate selective lapses over time.
Eat better foods at their food partners (If you are a Woolies and Discovery shareholder, score for you on a personal level!!), exercise more, keep up to date with all the measurements and health metrics, get rewarded. Vitality is designed to break even, you pay a little to perceptually get a lot. If you use the rewards systems properly, you certainly do get a lot back, money (real money) in your pocket and you are healthier. The added benefit for the company (this is where you get involved as a shareholder) is that they know their customer base is trying a lot harder to stay healthier. Remember that graph about the higher status (gold and diamond) on Vitality translating to a lower claim rate from the company, both in life and health.
155 million pounds is a lot of money, it will be funded from internal resources and an element of debt. 2.77 billion Rand, there is obviously a control premium there, the business as a collective is over 10 billion Rand. Discovery has a market cap total of nearly 62 billion Rand, clearly the market liked what they saw, the stock rallied 4.32 percent to settle at 104.5 ZAR, an all time high. Notwithstanding this, we agree with the companies sentiments, Vitality will continue to form a more important glue that sticks health and wellness together, enabling better profiling for life businesses.
We continue to buy Discovery, the company management and CEO Adrian Gore does not stand still, doing great deals as and when they arise as well as continuing to add onto a great business here locally.
Things that we are reading, that we think you should be too
The world is moving to legalise marjuana but ban tobacco - Massachusetts town weighs nation's first tobacco ban. I agree that when the state is paying for your healthcare they can then have a say in what you consume. I disagree though with banning tobacco, all that happens is that an underground market pops up and the government doesn't get tax from the sales.
Access to internet will help level the playing field between rich and poor - Elon Musk confirms satellite plans, announcement '2 - 3 months away'. More people using the internet is also great for companies like Facebook and Google.
Today is the biggest retail shopping day in the world, known as "singles day" or anti-valentines day. The reason for it being today is due to the date 11/11 (all ones or singles). Alibaba is one of the companies that score big today - Alibaba just sold more than $1.8 billion worth of goods in one hour of online shopping.
Using light instead of radio waves is where the future of data transmission is going - Germany's Fraunhofer Institute prepares to show off Li-Fi hotspot at Electronica. Not only is this solution faster but also uses 85% less energy.
Another look at the debate of active v passive portfolios - Mission Impossible: Beating the Market Forever. I think the value in active management is not beating the market year in and year out but beating the market more times than you don't. Not even Buffett beats the market every year but if you stuck with him over the last 50 years you would be smiling.
Home again, home again, jiggety-jog. Average at best here, we have resources under pressure again, gold stocks are off again after a short recovery period, the Rand is weaker, over 11.30 to the US dollar. Retail companies are catching a bid, obviously the lower commodity prices should help Joe Consumer. Not much on the economic news front!
Sasha Naryshkine, Byron Lotter and Michael Treherne
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