Local Trade Idea: Old Mutual (OMU) - BUY
Old Mutual is the largest life insurance company in SA and has dominant market share in the mass foundation (lower end) and corporate segments of ~60% and ~70%, respectively. Following the unbundling of Nedbank, the Old Mutual managed separation is complete, and the business is now an African-focused financial services business. The group offers a wide array of financial services to individuals, corporates, and institutions across 17 countries.
Technically, a price that broke through major resistance and is re-testing that resistance, makes for an attractive investment option (see the black resistance line on the main chart).
The pattern is made up of a sequence of events. Initially, there is a resistance level (at which the share price has difficulty rising above). When the share approaches this level, selling pressure tends to increase, preventing the price from moving past this point.
At some point, due to a change in market dynamics, the share manages to break above this resistance level, indicating a potentially strong bullish move. This is called a breakout.
After the breakout, the share price can retract towards the previously established resistance level. When this happens, that old resistance level becomes a new "support" level. The process of the share price retracting to this level is referred to as re-testing. If the share price holds above the old resistance (now support) level and moves upwards, it confirms the strength and validity of the initial breakout.
The share also appears to be developing a base (see the grey rectangle on the main chart). The pattern occurs when the price consolidates or moves sideways, signalling a potential pause before resuming its trend.
According to the RSI (Relative Strength Index), the stock will be overbought at ~R15.80. This classifies our profit target of R14.30 as realistic.
We suggest a medium capital at-risk allocation to this trade. Increase exposure for a break above R12.90.
Share Performance
Share Information
| Share code | OMU |
|---|---|
| Industry | Insurance |
| Market Capital (ZAR) | 59.05 billion |
| One year total return | 34.06%% |
| Return year-to-date | 22.91% |
| Current price (ZAR) | 12.30 |
| 52 Week high (ZAR) | 13.44 |
| 52 Week low (ZAR) | 9.6 |
| Financial year end | December |
| Closing paragraph | The share already captured solid year-to-date returns. Several technical indicators suggest further upside potential. The stock remains above its 200-day simple moving average of ~R11.72. |
Consensus Expectations (Bloomberg)
| FY22 | FY23E | FY24E | FY25E | |
|---|---|---|---|---|
| Headline Earnings per Share (ZAR) | 1.40 | 1.54 | 1.74 | 1.94 |
| Growth (%) | 10.09 | 12.87 | 1.94 | |
| Dividend Per Share (ZAR) | 0.76 | 0.88 | 0.96 | 1.07 |
| Growth (%) | 15.66 | 8.87 | 11.81 | |
| Forward PE (times) | 7.99 | 7.08 | 6.33 | |
| Forward Dividend Yield (%) | 7.15 | 7.78 | 8.70 | |
| Closing paragraph | Old Mutual seems attractively priced relative to its peers with strong earnings growth expected over the forecast horizon. We also regard the 12-month forward dividend yield of over 7% as attractive. | |||
Buy/Sell Rationale
Technical Analysis:
Long-term fundamental view
| Share Name and position | DSY - Stop-loss (Close the position) | MTN - Stop-loss (Close the position) | STXRES - BUY (Continue to hold) |
|---|---|---|---|
| Entry | 152.50 | 132.49 | 59.63 |
| Current | 132.50 | 107.54 | 63.42 |
| Movement | -13.1% | -18.8% | 6.4% |
| Summary text | The stock breached our stop-loss level, leading us to close the position. | The stock breached our stop-loss level, leading us to close the position. |
The ETF is trading at some major support or in an accumulation phase. Remains below the 200-day simple moving average. Start of upside price momentum supports the trade idea.
Our profit target is R69, with a trailing stop-loss at R59.60. Exit the trade around 8 January 2024. |
| Share Name and position | INL - BUY (Continue to hold) | BVT - BUY (Continue to hold) | CLS - BUY (Continue to hold) |
|---|---|---|---|
| Entry | 105.00 | 272.78 | 256.24 |
| Current | 108.37 | 274.68 | 255.18 |
| Movement | 3.2% | 0.7% | -0.4% |
| Summary text |
The price remains stable above its 200-day simple moving average. Downside price momentum is a concern.
Our profit target is R121, with a trailing stop-loss at R102. Exit the trade around 30 October 2023. |
The price appears stable and consistent. Remains above its 200-day simple moving average. Fading downside price momentum supports the trade idea.
Our profit target is R310, with a trailing stop-loss at R258. Exit the trade around 11 December 2023. |
A price that remains above key support and developing a falling wedge pattern remains of interest. Remains below its 200-day simple moving average and might find support at its 200-week simple moving average. Downside price momentum is a concern.
Our profit target is R296, with a trailing stop-loss at R240. Exit the trade around 29 December 2023. |
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