Discovery share price tentatively higher after FY23 results

Key Takeaways:

1. The Discovery Group has reported a strong performance in its financial year ending 2023, achieving growth in its three main business operations - South Africa, the United Kingdom, and the Vitality Global division.

2. Operating profit increased by 24% despite challenging economic conditions which include inflationary pressures, rising interest rates, and a strong US dollar.

3. All divisions witnessed growth in normalised operating profit, with the Vitality Global division experiencing the highest growth at 74%. South Africa and the UK also saw strong new business growth, with core new business API increasing by 11% and 26% respectively.

4. A final gross cash dividend of 110c per share has been reinstated.

Discovery results overview

The Discovery Group has reported a strong performance for the financial year ending 2023. Despite the global macroeconomic uncertainty, the company managed to deliver robust growth in its three main business operations - South Africa, the United Kingdom, and the Vitality Global division.

According to the financial report, the operating profit of the Discovery Group has seen an increase of 24%, reaching R11 661 million. This is a significant achievement considering the prevailing economic conditions including inflationary pressures, rising interest rates, and a strong US dollar. The headline earnings have also seen a rise of 5%, amounting to R5 490 million, while the normalised headline earnings have surged by 32% to R7 678 million.

Moreover, the company has reported a 12% increase in core new business annualised premium income (API), which sits at R22 788 million. This growth in API is a positive indicator of the company's financial health and its ability to generate consistent revenue.

The Discovery Group has managed to achieve this growth despite the economic rebounds following the COVID-19 pandemic and the severe energy shortages in South Africa. The group's businesses have shown resilience by delivering strong premium and revenue growth.

The growth in normalised operating profit was witnessed across all business operations. The South African division saw a growth of 22%, the UK division grew by 21%, while the Vitality Global division grew by a whopping 74%. The latter two benefitted from a weaker rand during the financial year.

The group also reported strong new business growth in South Africa and the UK, with core new business API increasing by 11% and 26% respectively. However, the Vitality Global division saw a decline of 1% due to the complex environment in Ping An Health Insurance.

Despite the volatility in headline earnings caused by economic assumption changes, the Discovery Group has managed to maintain its liquidity, cash flows, and solvency. The group's policy of normalising for the impact of long-term interest rate movements has been instrumental in achieving this stability.

Earnings growth sees the company reinstating a final gross cash dividend of 110c per share after not having declared a final dividend in the prior year.

Discovery – trading view

The share price of Discovery initially gapped higher after the release of full year results, although has since moved lower in general risk off market sentiment on the day.

Traders looking for long entry might prefer to see a positive close today before committing to long positions in line with the longer-term uptrend in place. In this scenario, 15250 and 15370 provide initial upside resistance targets, while a close above these levels would suggest that 16020 could be a further target from the move. Traders who are long might consider a stop loss on a close below support at the 14220 level.