Remgro Limited (JSE: REM) recently reported its latest annual earnings, covering the fiscal year ending June 30, 2023. In the face of an exceptionally demanding macroeconomic backdrop, this esteemed financial services entity continues to demonstrate unwavering confidence in the resilience of its diverse portfolio, underscored by solid top-line growth amidst a multitude of formidable challenges.
In its commentary on the company’s performance in its latest financial year, Remgro mentioned the challenges posed by load shedding, elevated inflation, restrictive interest rates, higher electricity costs, and foreign exchange volatility that have created the most challenging operating business environment since its inception. Despite this, Remgro reported an 8.7% expansion in headline earnings from R6.49Bn to R7.06Bn, while headline earnings per share (EPS) increased by 8.9% to R12.54. Over the past two years, various corporate actions have impacted the comparability of Remgro’s headline earnings, and the resilient performance of its underlying portfolio becomes evident in the 27% headline earnings expansion when excluding the impacts of these corporate actions.
This expansion in headline earnings was mainly attributed to strong contributions from OUTsurance Group’s continuing operations, while Mediclinic contributed R1.04Bn to Remgro’s bottom line. These increases were slightly offset by TotalEnergies, which adversely affected the company’s headline earnings by R1.02Bn. Total earnings, however, decreased by 26.8% to R9.62Bn from R13.14Bn, mainly due to Remgro’s portion of the profit it realized from the unbundling of OUTsurance’s investments in Discovery and Momentum Metropolitan accounted for in the comparative year. Revenue for the year increased from R41.88Bn to R48.15Bn, allowing the company to declare a final dividend of R1.60 per share.
Technical
On the 1D chart, the share price showed signs of exhaustion at the top of its uptrend, which peaked at R162.05. The 50-SMA (blue line) crossed above the 25-SMA (green line), suggesting a reversal of momentum to the downside, which aligns with the descending channel that has formed in a consolidatory manner atop the uptrend.
While trading below the R153.69 daily pivot point, the intraday momentum favours the bears, with support at R152.39 (S1) and R151.48 preventing a breakdown from the channel. This potential breakdown could trigger a sustainable downtrend, with the risk of falling below the 100-SMA (orange line) at R149.41. From the late-July peak, the Fibonacci midpoint and golden ratio at R146.04 and R142.27 could provide additional support if the downtrend persists.
However, should the dynamic support of the channel hold, the upside momentum triggered by the positive earnings report could continue. However, resistance at R155.32 (R1) and R156.00 stand in the way of convergence with the 25-SMA and 50-SMA. While this could be a challenging level to breach at current volumes, a leg above the respective SMAs could lead to a retest of the channel resistance at R158.59, where the longer-term momentum of the price could be determined.
Summary
Despite citing an extremely harsh macroeconomic backdrop, Remgro displayed resilience in keeping its earnings momentum going with a strong headline earnings expansion. The 2.32% gain on the day of the release failed to sustain, though, making support at R152.39 and R151.48 essential levels to watch in the upcoming sessions.
Sources: Koyfin, Tradingvew, Remgro Limited
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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