What's Old Mutual really worth?

The sleepy world of insurance has woken up in the past few weeks. The FTSE 350 Insurance index has grown at twice the pace of the FTSE All-Share over the past seven days, and this weekend we hear that Old Mutual is on the cusp of being broken up by the new boss.

According to Sky News, Old Mutual will announce details of a break-up when it publishes full-year results on Friday. It's why the share price rocketed as much as 11% Monday to over 200p for the first time in three months.

"We can confirm that all options for the strategic review are being considered but no decision has yet been made," said the insurer in a brief statement Monday morning.

Chief executive Bruce Hemphill only took over in November, but a strategic review quickly followed, and we will get an update Friday. The hot money's on Old Mutual's US asset management business, UK-focused wealth management operation, African financial services business and 40% stake in South Africa's Nedbank going their separate ways.

IPO of UK Wealth operations

Former CEO Julian Roberts had already indicated that if management could not unlock the company's persistent conglomerate discount, they would consider a potential IPO of the UK Wealth operations. They haven't, so more severe action looks inevitable.

A multibillion pound joint cash offer for Old Mutual Wealth has already been tabled by private equity giants Cinven and Warburg Pincus, reports Sky.

But if Old Mutual confirms these reports on Friday, what is the company really worth? Well, after running the numbers, the team at Barclays has got an idea.

"Using market prices and peer multiples at close of business Friday, our calculations suggest that Old Mutual may be worth 192.5p/share under current market conditions (on a sum-of-the-parts basis)," says the broker. "However, we highlight that break-up calculations may take on many permutations, and it is feasible that a very different outcome may be announced at the 2015 results.

"We consider the potential IPO of the UK Wealth operations, or any other potential corporate action that could unlock the conglomerate discount and/or result in a special divided, to be a free option in addition to attractive valuation upside."

Barclays' one-year forward price target is 210p, which increases to 217p if you roll forward the broker's estimates and apply a group discount rate of 12.5%.

For the record, Barclays reckons Old Mutual generated earnings per share (EPS) of 19p in 2015, slightly ahead of consensus estimates and up from 17.9p the year before. Look for a full-year dividend of 9.45p a share.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.