Don't be alarmed by Resolution's reported loss as this was heavily distorted by £296m of non-recurring costs and impairment and amortisation of £759m. Investment fluctuations accounted for a further £230m, but add these back in and IFRS operating profits jumped from £275m to £681m. That's not bad given the ongoing integration of businesses acquired, and the shares still look cheap priced 37 per cent below embedded value and yielding a chunky 7.5 per cent.
Resolution is still integrating recent acquisitions, but the ultimate target is to generate further shareholder value by disposing of all or parts of the Friends Life business. Options here include a cash sale or a direct listing as a standalone entity. To effect a self-managed exit plan, Resolution plans to split Friends Life into two companies: OpenCo will comprise the UK Go to Market business and the international side, while HeritageCo will include the UK Heritage business and associated support businesses.
The group has also set itself some key financial targets that, on the UK protection business, include a £30m a year reduction in cash new business strain (the cost of writing new business), and increasing the gross value of new business by £80m a year to deliver a 20 per cent internal rate of return. Similar targets have also been set for the corporate benefits and retirement income divisions.
| RESOLUTION (RSL) | ||||
|---|---|---|---|---|
| ORD PRICE: | 265p | MARKET VALUE: | £3.6bn | |
| TOUCH: | 265-266p | 12-MONTH HIGH: | 320p | LOW: 228p |
| DIVIDEND YIELD: | 7.5% | PE RATIO: | na | |
| NET ASSET VALUE: | 436p* | EMBEDDED VALUE: | 421p | |
| Year to 31 Dec | Gross life premiums (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 1.29 | 956 | 81.1 | 18.0 |
| 2011 | 2.13 | -268 | -4.4 | 19.9 |
| % change | +65 | – | – | +10 |
Ex-div: 18 Apr Payment: 21 May *Includes intangible assets of £4.85bn, or 352p a share | ||||
