Old Mutual Limited (JSE: OMU) has recently faced significant challenges amidst a public relations crisis stemming from allegations of failing to honour client investments and payouts, leading to a sharp decline in its share price. The company’s shares plummeted over 3.3% on Friday, leaving the share down over 8.2% year-to-date, although they have shown a 6.3% increase over the past 52 weeks.
The company’s reputation took a hit after a social media backlash triggered by a viral post accusing Old Mutual of defying a court order to release a client’s funds. This led to widespread outrage and calls for a boycott, further exacerbated by similar grievances shared by other customers, including notable figures like musician Zakes Bantwini.
However, on a brighter note, Old Mutual forecasts good financial performance for 2023, with profit after tax potentially rising as much as 45% year-on-year, driven by exceptional new business growth and a recovery in equity markets. This positive outlook is further supported by the company’s recent trading statement which indicates a rise in adjusted headline earnings per share (AHEPS) of between 14% and 34%.
Technical
The 4-hour chart shows that the recent social media controversy has put significant pressure on OMU’s share price. The technical indicators suggest a short-term bearish trend, with the price trading below all key SMAs [50-SMA (blue line), 100-SMA (orange line) and 200-SMA (red line)] and the Relative Strength Index (RSI) dipping below 50.
Therefore, with the RSI (43.41) trading below the 50.00 level, a sustained push lower would leave the 1,163 cents price level as the initial level of interest lower. A sustained break below initial support on significant volume would leave the 1,115 cents support level firmly in focus in the near term.
However, there is a possibility of a short-term recovery if the bulls regain control. A break above the SMAs, particularly with significant trading volume, could see the price climb towards the 1,221 cents resistance level. Further upward momentum could potentially reach the 1,260 cents and 1,300 cents levels.
Summary
Old Mutual Limited is facing a challenging period due to negative publicity. While the company boasts strong fundamentals with promising new business growth and profit increase, the recent social media storm has taken a toll on the share price. Technically, OMU’s outlook is bearish in the short term, with key support levels at 1,163 cents and 1,115 cents. However, a break above resistance at 1,221 cents could indicate a potential short-term recovery..
Sources: TradingView, Old Mutual, MoneyWeb, MSN, iol, Bloomberg.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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