Discovery’s SA operations and Vitality boost earnings

Discovery’s share price rose almost 5% in early trade on the JSE after the group said it expects full-year headline earnings to rise by about a third, buoyed by strong growth in Discovery South Africa and the group’s Vitality business.

Discovery said on Wednesday that normalised profit from operations is expected to increase by between 15% and 20% for the year ended June as the group “delivered robust results for the financial year”.

Discovery South Africa is expected to grow 13%-18% and the Vitality composite is expected to grow between 18% and 23%, the group said.

Normalised headline earnings are expected to increase by between 18% and 23%, enhanced by lower finance costs, in line with the group’s planned reduction in financial leverage.

Headline earnings are expected to improve by between 31% and 36%, following the gain on termination of the lease through the previously announced acquisition of 1 Discovery Place, the group’s head office, it said.

The group announced the acquisition of its head office property in February in a transaction valued at just more than R4bn. Discovery said at the time that the transaction provides strong financial and economic benefits to the group as economic dynamics have moved in favour of a purchase, with both prevailing interest rates and property prices in Johannesburg having reduced significantly.

This has enabled a switch from a long-term lease arrangement for the property to a fully funded financing arrangement with ownership, at a lower overall cost.

HEPS is therefore expected to increase by between 31% and 36% to a range of 1,895.6c to 1,967.9c. Normalised HEPS is expected to increase by between 18% and 23%, it said.

At 9.40am on the JSE, the company’s share price was up 4.8% at R258.82, taking its year-to-date gains to 13.7%.