Is Now the Time to Buy Old Mutual?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at Old Mutual (OMU -1.50%) to determine whether you should consider buying the shares at 187 pence.

I am assessing each company on several ratios:

• Price/Earnings (P/E): Does the share look good value when compared against its competitors?
• Price/Earnings-to-Growth (PEG): Does the share look good value factoring in predicted growth?
• Yield: Does the share provide a solid income for investors?
• Dividend Cover: Is the dividend sustainable?

So let's look at the numbers,

The consensus analyst estimate for this year's earnings per share is 17.8 pence (down 7%) and dividend per share is 6.1 pence (down 35%).

Trading on a projected P/E of 10.5, Old Mutual appears significantly cheaper than its peers in the life insurance sector, which are currently trading on an average P/E of around 22.6. Unfortunately, Old Mutual's P/E and negative near-term growth rate give a negative PEG ratio, which cannot help with my analysis.

Old Mutual offers a 3.1% yield, which is slightly below the sector average of 4%. However, the company does have a three-year compounded dividend growth rate of 235%, implying the payout could soon catch up to that of its peers.

Indeed, the dividend is more than three times covered, giving Old Mutual plenty room for further payout growth.

Old Mutual looks relatively cheap, but can it continue to grow?
As I say, Old Mutual currently looks cheap compared with its peers, and I believe the company can continue to grow. You see, the company is a pension manager and its growth is therefore linked mostly to the performance of the general stock market, which, as we all know, has been doing well recently. I believe the market's recent strength will positively affect Old Mutual's performance.

Furthermore, I can see that Old Mutual has made significant structural changes to its business during the past few years. For example, during the past year alone, the group has been working on selling non-core businesses and restructuring different divisions. In particular, Old Mutual has sold some European and U.S. business and has revamped its independent Skandia business into Old Mutual Wealth management.

In addition, Old Mutual has been working on debt reduction, and during the past six months, the group brought back 1.5 billion pounds of debt -- thereby reducing the company's total borrowings by around 40%.

Finally, I should also mention the company's banking division and, in particular, Old Mutual's South African banking operation, which saw profits jump more than 27% during the first half of the year. Indeed, I can see that Old Mutual's success in Africa could be set to continue with the group's recent $20 million acquisition of a Nigerian chain of banks.

So with all that in mind, I believe now looks to be a good time to buy Old Mutual at 187 pence.

More FTSE opportunities
As well as Old Mutual, I am also positive on the FTSE shares highlighted in "8 Dividend Plays Held by Britain's Super Investor." This exclusive report reveals the favorite income stocks owned by Neil Woodford -- the City legend whose portfolios have thrashed the FTSE All-Share by 200% during the 15 years to this past October.

The report, which explains the full investing logic behind Woodford's dividend strategy and his preferred blue chips, is free to all private investors. Just click here for your copy. But do hurry, as the report is available for a limited time only.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.