By Peet Serfontein & Hashmeel Suka.
Discovery operates in the healthcare cover and life assurance markets in South Africa (SA) and the United Kingdom (UK), and in the SA long-term savings and financial services market. The company holds a key partnership with Vitality, which is the largest provider of individual and corporate wellness initiatives in the world.
Discovery has revolutionised the insurance industry by using digital solutions to customise and fine-tune actuarial assumptions, thereby improving claims ratios, persistency ratios and lapse rates. Digital solutions are also used to encourage members to develop healthier lifestyle habits.
Technically, the stock is trading above major support (refer to black trendline on the main chart) suggesting there is enough demand from investors to prevent any significant decline. Trade at this level is typically followed by a bullish reversal, with strong fundamentals supportive of improved sentiment or market interest.
The appearance of a green Heikin Ashi candle (not displayed) is also indicative of improved buying pressure and this is supportive of our bullish view.
Emerging upside price momentum according to the MACD indicator, and sidewards movement of the On-Balance Volume indicator (which suggests money staying in the share) is also encouraging.
Share Information
| Share Code | DSY |
|---|---|
| Industry | Consumer Insurance |
| Market Capital (ZAR) | 84.9 billion |
| One Year Total Return | -14.41% |
| Return Year-to-Date | -12.15% |
| Current Price (ZAR) | 125.47 |
| 52 Week High (ZAR) | 160.42 |
| 52 Week Low (ZAR) | 107.12 |
| Financial Year End | June |
| The stock has come under some pressure this year, though various technical indicators suggest an imminent recovery. |
Consensus expectations
(Bloomberg)
| FY23 | FY24E | FY25E | FY26E | |
|---|---|---|---|---|
| Headline Earnings per Share (ZAR) | 7.82 | 10.61 | 12.52 | 14.67 |
| Growth (%) | 35.71 | 18.02 | 17.16 | |
| Dividend Per Share (ZAR) | 0.00 | 1.80 | 2.12 | 2.47 |
| Growth (%) | - | 17.72 | 16.56 | |
| Forward PE (times) | 10.08 | 8.61 | 8.56 | |
| Forward Dividend Yield (%) | 1.68 | 1.96 | 1.97 | |
| Earnings are expected to strongly rebound this year amid good growth in the Health, Banking and Vitality offerings. | ||||
Buy/Sell Rationale
Technical Analysis:
Long-term fundamental view:
| Share Name and position | INL - BUY (Continue to hold) |
NRP - BUY (Continue to hold) |
CFR - BUY (Continue to hold) |
|---|---|---|---|
| Entry | 120.71 | 131.00 | 2 983.50 |
| Current | 128.12 | 133.63 | 3 021.27 |
| Movement | 6.1% | 2.0% | 1.3% |
|
A developing rising wedge pattern remains of interest. Upside price momentum is supportive. The stock remains above its 200-day simple moving average.
Our profit target is R137 with a trailing stop-loss at R121.50. Exit the trade on 29 July 2024. |
An inclining channel pattern remains of interest. Fading downside price momentum is supportive. The stock remains above its 200-day simple moving average.
Our profit target is R146 with a trailing stop-loss at R128. Exit the trade on 9 September 2024. |
A share that correlates with the rand remains of interest. Upside price momentum supports the trade. The stock remains above its 200-day simple moving average.
Our profit target remains at R3 248 with a trailing stop-loss at R2 877. Exit the trade on 30 September 2024. |
| Share Name and position | DCP - Buy (Continue to hold) |
SHP - Buy (Continue to hold) |
BID - Buy (Continue to hold) |
|---|---|---|---|
| Entry | 32.49 | 258.45 | 426.00 |
| Current | 32.38 | 253.19 | 410.36 |
| Movement | -0.3% | -2.0% | -3.7% |
|
The stock is in a developing symmetrical triangle pattern. Downside price momentum has halted. The stock remains above its 200-day simple moving average.
Our profit target is at R37 with a trailing stop-loss at R30.60. Exit the trade on 1 July 2024. |
A price that is in a developing rising wedge pattern remains of interest. Emerging upside momentum is supportive. The stock is testing its 200-day simple moving average.
Our profit target remains at R295 with a trailing stop-loss at R245.30. Exit the trade on 22 July 2024. |
A consistent bullish uptrend remains of interest. Downside price momentum is a concern. The stock has crossed below its 200-day simple moving average.
Our profit target is R477, with a trailing stop-loss of R406. Exit the trade around 12 August 2024. |
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