Discovery operates in the healthcare cover and life assurance markets in South Africa (SA) and the United Kingdom (UK), and in the South African long-term savings and financial services market. Vitality, a subsidiary of Discovery, is the largest provider of individual and corporate wellness initiatives in the world, and operates in SA, the UK, the US, and Asian Markets.
The company has revolutionised the insurance industry in that it uses digital solutions to encourage members to live healthier lives and to customise and fine-tune its actuarial assumptions, thereby improving claims ratios, persistency ratios and lapse rates.
Technically, a developing symmetrical triangle pattern makes the share attractive as an investment opportunity (see the black converging trendlines as well as the insert on the main chart).
The pattern is formed by two converging trendlines, with the lower trendline connecting a series of higher lows and the upper trendline connecting a series of lower highs, resulting in a triangle-like shape. A symmetrical triangle that appears in a previous uptrend is often considered a continuation pattern, suggesting that the prevailing uptrend is likely to resume.
According to the RSI (Relative Strength Index), the stock will be overbought at ~R185. This classifies our profit target of R182 as realistic. We suggest a medium capital at-risk allocation to this trade.
Share Information
| Share code | DSY |
|---|---|
| Industry | Insurance |
| Market Capital (ZAR) | 109.93 billion |
| One year total return | 21.39% |
| Return year-to-date | 25.16% |
| Current price (ZAR) | 154.39 |
| 52 week high (ZAR) | 100.73 |
| 52 week low (ZAR) | 100.73 |
| Financial year end | June |
| Closing paragraph | The stock remains above its 200-day simple moving average, suggesting a long-term bullish stance. Year-to-date performance has been very attractive and based on several other technical indicators, the bullish trend is expected to continue. |
Consensus expectations
(Bloomberg)
| FY22 | FY23E | FY24E | FY25E | |
|---|---|---|---|---|
| Headline Earnings per Share (ZAR) | 8.18 | 10.83 | 12.73 | 14.55 |
| Growth (%) | 32.39 | 17.60 | 14.28 | |
| Dividend Per Share (ZAR) | 0.00 | 0.82 | 1.90 | 2.22 |
| Growth (%) | - | 132.40 | 16.99 | |
| Forward PE (times) | 14.26 | 12.13 | 10.61 | |
| Forward Dividend Yield (%) | 0.53 | 1.23 | 1.44 | |
| Closing paragraph | Earnings growth is expected to taper off over the forecast horizon, but remains solid and in the double-digits, nonetheless. | |||
Buy/Sell Rationale
Technical Analysis:
Long-term fundamental view:
| Share Name and position |
CFR - Stop-loss (Close the position) |
TFG - BUY (Continue to hold) |
INL - BUY (Continue to hold) |
|---|---|---|---|
| Entry | 3 060.92 | 83.54 | 105 |
| Current | 2 831.00 | 96.08 | 113.01 |
| Movement | -7.5% | 15% | 7.6% |
| Summary text | The share reached our stop-loss level, and we closed the position. Strong downward momentum is present and remains a concern. |
The stock continues to trade below its 200-day simple moving average. Upside momentum is supportive of the trade.
Our profit target is R132, with a trailing stop-loss of R78. Exit the trade around 8 July 2024. |
The price is noteworthy based on the RRG analysis, particularly due to its ability to stay above the 200-day simple moving average. Upside price momentum supports the idea.
Our profit target is R121, with a trailing stop-loss at R107. Exit the trade around 7 August 2023. |
| Share Name and position |
OMU - BUY (Continue to hold) |
ABG - BUY (Continue to hold) |
APN - BUY (Continue to hold) |
|---|---|---|---|
| Entry | 11.67 | 169.90 | 182.66 |
| Current | 12.55 | 179.92 | 191.66 |
| Movement | 7.5% | 5.9% | 4.9% |
| Summary text |
The price displays a potential reversal of a bearish trend. The share remains above its 200-day simple moving average. Upside momentum supports the bullish trend.
Our profit target is R16, with a trailing stop-loss at R10.70. Exit the trade around 17 November 2023. |
The price remains at the lower range of an ascending channel pattern, which remains of interest. Testing its 200-day simple moving average and upside price momentum continues to support the trade idea.
Our profit target is R195, with a trailing stop-loss at R170. Exit the trade around 9 October 2023. |
A developing symmetrical triangle pattern remains of interest. Remains above its 200-day simple moving average and upside price momentum is supportive of the trade idea.
Our profit target is R222, with a trailing stop-loss of R171. Exit the trade around 27 December 2024. |
