Add back a one-off tax charge and profit at closed-life specialist Chesnara jumped 145 per cent on an IFRS basis to £9.3m. Moreover, the dividend has been increased again - boosting an already healthy yield - yet the shares trade at a hefty 26 per cent discount to embedded value, which is far too cheap.
Profit growth was driven by the inclusion of Save & Prosper (S&P) funds - acquired in December 2010 for £63.5m - where profits reached £5.1m, up from last year's £0.8m loss, thanks to investment income having more than offset the increased cost of policy guarantees; itself a product of falling bond yields. Moreover, since the half-year end, funds in S&P have been successfully transferred into the core business, resulting in a capital release of £7m.
Chesnara's core run-off business has 265,000 pension policies in force and total UK attrition rates fell from 6.9 per cent to 6.5 per cent - that's good because the longer that policies remain in force the greater the accrued profit. However, Movestic - the unit-linked Swedish Life and Pensions business acquired in 2010 - suffered much higher rates of attrition, although Chesnara expects the rate to fall transfer penalties on pension policies have been introduced.
Canaccord Genuity expects full-year adjusted EPS of 14.5p (22.35p in 2011).
| CHESNARA (CSN) | ||||
|---|---|---|---|---|
| ORD PRICE: | 190p | MARKET VALUE: | £218m | |
| TOUCH: | 189-191p | 12-MONTH HIGH: | 223p | LOW: 155p |
| DIVIDEND YIELD: | 9% | PE RATIO: | 7 | |
| NET ASSET VALUE: | 177p* | EMBEDDED VALUE: | 258p | |
| Half-year to 30 Jun | Net premiums (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 45.3 | 3.81 | 2.79 | 5.95 |
| 2012 | 41.3 | 4.48 | 6.19 | 6.10 |
| % change | -9 | +18 | +122 | +3 |
Ex-div: 12 Sep Payment: 15 Oct *Includes intangible assets of £108m, or 94p a share | ||||
