Discovery expects a big year, and one of the reasons is the building it works in. The insurer told the market on Wednesday that headline earnings for the twelve months to 30 June should rise between 31% and 36%, and named the reason in the same breath: a gain booked on ending the lease over 1 Discovery Place, its Sandton head office, which it now owns outright.
A gain of that kind is a bookkeeping event rather than money arriving. Discovery said in February, when it announced the purchase, that the economics had swung towards owning, with both interest rates and Johannesburg property prices well down, which let it swap a long-term lease for a fully funded ownership arrangement at a lower overall cost. The deal was valued at just over R4 billion.
Three earnings numbers, three different answers
Discovery published three profit measures on Wednesday and they do not agree with each other, which is the useful part. Normalised profit from operations, the closest thing to how the businesses actually traded, is expected up between 15% and 20%. Discovery South Africa sits in the lower half of that and the Vitality composite above it.
Move up the ladder and the number grows. Normalised headline earnings, which also picks up lower finance costs as the group works its debt down, is expected up between 18% and 23%. Headline earnings, the measure carrying the building, is up between 31% and 36%. The distance between the bottom rung and the top one is the head office.
In cents it reads the same way. Headline earnings per share are expected between 1895.6c and 1967.9c, against 1447.0c last year.
What the market did with it
Investors took the top number. The share was up 4.8% at R258.82 by mid-morning on the JSE, which put it 13.7% higher for the year so far. Business Day rendered the headline earnings range as a rise of about a third, which is accurate and is the version that travelled.
The full results land on 3 September and will carry the detail a trading statement does not: how much of the jump is the lease and how much is insurance. None of the forecast numbers has been reviewed by Discovery's auditors, which is standard for a trading statement.
