Market chides Discovery as bank eats into its earnings
The insurance group known best for its medical fund is opening a bank and a retirement business and is pushing deeper into foreign markets
The cost of setting up a bank will weigh on Discovery's earnings, but as a long-term play it is expected to pay off if it draws customers from outside its fold.
Discovery flagged a lower half-year profit on Friday as the cost of setting up new businesses affected the group's earnings.
The insurance group known best for its medical fund is opening a bank and a retirement business and is pushing deeper into foreign markets, as part of a multi-year strategy to deploy its steady cashflow to establish future streams of income.
These investments, mostly the new bank, reduced earnings on the income statement by about 21% for the six months to December, the company said.
As a result it will report a 16% drop in headline earnings per share to about 366c.
Shares in Discovery fell nearly 6% after the announcement, despite reassurances by the company that the spending on new businesses is as budgeted and is fully provided for in its capital plan.
"On the multiple they trade, the expectation is that they will grow profit every time," said Vestact portfolio manager Michael Treherne...
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