Still too much risk for a stake in Old Mutual
THERE was some relief for investors in Old Mutual after the troubled insurer and asset manager scotched mounting speculation that it would tap the market for money.
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THERE was some relief for investors in Old Mutual after the troubled insurer and asset manager scotched mounting speculation that it would tap the market for money.Instead of launching what investors feared would be a rights issue, the blue-chip insurer unveiled a different way of saving cash. It has decided not to pay a final dividend and has said no payment will be made to shareholders in 2009.Analysts had braced themselves for a cut in the final payout, as Old Mutual has been one of the worst hit insurers. While most of its revenue comes from South Africa, which is experiencing an economic slowdown but nothing on the scale seen in the UK, it is its exposure to other countries that is weighing on the shares.Old Mutual last year revealed it could not meet guarantees for its $2.8bn (£2bn) variable annuity US business due to adverse movements in the Asian markets. However, recently installed chief executive Julian Roberts said hedging put into place by the group is now working better and that the group is also paying £235m to close part of its US business.The £235m payment came as a surprise to some analysts and there was also some disappointment that Old Mutual is not selling its 55pc stake in Nedbank, South Africa's fourth biggest bank.Roberts has remained tight-lipped on speculation that Old Mutual looked to sell its Nedbank stake. He has, however, admitted that selling a major investment in these markets is difficult and instead Old Mutual will lift its investment by 2pc in return for passing over its three wealth management joint ventures to Nedbank. Roberts is also taking greater action to streamline the group according to the types of products it sells, rather than by region. This will lead to a restructuring of the company, enabling cross selling of products and cost savings due to IT efficiencies. It will also focus on fewer countries, to simplify the business. It has sold its small Australian business and pulled out of Portugal and will scale back plans to grow in the Far East.All these changes are certainly a step in the right direction and investors will be reassured that it has reserves of £700m above what is needed to meet regulatory requirements. Old Mutual is in a much more stable position since Questor last advised investors to avoid the shares when they were trading at 57p in November. Directors buying shares recently will instil further confidence. However, investors are still extremely worried about the insurers, with the sector down sharply on Thursday after Aviva posted results and concerns arose once again about its solvency. The sector is at historic lows, and Old Mutual in particular looks good value, with the shares trading on just under three times forecast earnings. But with the group offering no yield and plenty of risk still in the shares, investors should hold off a little longer.Aggreko413p Questor says BUYTEMPORARY power group Aggreko posted a 52pc rise in full-year pre-tax profit, with its results boosted by tight credit markets. Significantly, it also raised its full-year dividend by 25pc. The shares are still only yielding 2.6pc but the dividend hike is a sign of management confidence. The company rents generators and power systems and its generation fleet is the largest in the world, with enough capacity to provide 9pc of the total generating capacity of the UK. The company was upbeat about its prospects for the first half of 2009 but accepted that "the outlook for the second half is less certain". With the current market situation, this stance is sensible. Questor recommended buying shares in Aggreko on October 17 and the shares are roughly at the same level now after rising to almost 500p. Questor believes now is a good time for investors seeking a new position in the shares to make a purchase. The company's chief executive is Rupert Soames, Winston Churchill's grandson. Following the results, he noted that the lack of available financing to build new