Discovery’s new era off to a strong start

A robust operating performance in the last six months of 2024 will see Discovery’s interim earnings rise by as much as 35%.

Discovery released a trading statement for the six months ended 31 December, which revealed strong earnings projections for the financial services giant.

The company expects its normalised profit to increase by between 25% and 30%.

Discovery’s headline earnings per share are projected to increase by between 30% and 35%, while earnings per share are set to grow by a similar range.

The company said this growth was driven by a “robust operating performance” across the group.

Similar growth rates are expected for the company’s two composites, Discovery South Africa and Vitality.

Vitality is the single global composite comprising Vitality United Kingdom and Vitality Global.

Discovery is set to release its interim results on or about 4 March 2025.

In September 2024, Discovery CEO Adrian Gore explained that the company is entering a new phase of growth, which is characterised by improved cash generation and less spending on new initiatives like its bank.

This third phase of growth follows an eight-year investment cycle, during which the company invested heavily in creating its bank and expanding Vitality globally.

Gore said this marked an end to the first phase of unfettered growth, where Discovery went from strength to strength and produced an annual growth rate of 22.3%.

This first phase was characterised by Discovery pioneering and growing its Vitality shared-value model within life insurance and medical aid provision.

Discovery experienced strong organic growth from a small base before investing cautiously in new initiatives.

However, as growth plateaued, Gore explained that companies often enter the ‘Valley of Death’, where stagnation sets in. 

To break out, businesses must choose between acquiring others or expanding organically. 

Discovery opted for the latter, heavily investing in its offerings and expanding the Vitality shared-value model.

This marked its second phase, where significant spending – especially on launching Discovery Bank – led to rising debt and slower profit growth. 

The bank alone has cost R14.5 billion and is expected to turn profitable in 2025. Over this period, operating profit growth averaged 9.1%, down from 22.3% in the previous decade.

Realising it couldn’t grow organically through small ventures alone, Discovery went big. Gore stressed the company’s long-term vision – “We are not traders. We are operators.”

Now in its third phase, Discovery is focusing on sustained growth. As Discovery Bank becomes profitable, funding needs will drop, boosting cash generation. 

Established businesses are targeted to grow at CPI + 2% to 5% annually, helping reduce debt and freeing capital for strategic investments.

Spending on new initiatives is decreasing, with cash being returned to shareholders. 

As these ventures turn profitable, earnings are expected to grow at 15% to 20% annually, with new investments capped at 5% of total costs.

While short-term setbacks – like those in the UK division – may occur, Gore is confident in Discovery’s resilience. 

He believes only a major, rapid shift in one of its businesses could derail momentum, which is unlikely given the company’s diversified portfolio.