Resolution's (RSL) drive towards a more simplified structure continues and, although shareholders were faced with another set of complex results for last year, some key points shone through: the value of UK business sales almost doubled and it paid out one of the best dividends in the sector. So, with the shares still trading a third below embedded value, we remain buyers.
Strip out a one-off £404m gain last year and reported operating profits on an IFRS basis were virtually flat at £274m. Even so, the underlying performance was solid enough, with the value of new business up 28 per cent to £194m, while the cost of writing new business was reduced. However, a 3 per cent increase in the free cash surplus to £300m owed much to the narrowing of corporate bond spreads on assets backing the annuity business and reduced capital requirements.
Analysts at Investec expect current-year IFRS operating profits to surge to £747m, embedded value to rise from 411p to 476p per share by the year-end and the dividend to be held. Resolution will consider adopting a progressive dividend policy when sustainable cash generation reaches £400m, but last August it admitted that the low interest rate environment had made that target more of a challenge by around £50m a year. In fact, analysts at Investec think that it will be 2015 before the cash buffer exceeds the target and allows for higher dividends.
| RESOLUTION (RSL) | ||||
|---|---|---|---|---|
| ORD PRICE: | 272p | MARKET VALUE: | £3.86bn | |
| TOUCH: | 271-272p | 12-MONTH HIGH: | 278p | LOW: 189p |
| DIVIDEND YIELD: | 7.8% | PE RATIO: | NA | |
| NET ASSET VALUE: | 379p | EMBEDDED VALUE | 411p* | |
| 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 |
| 2012 | 1.91 | 66 | -5.2 | 21.1 |
| % change | -10 | - | - | +6 |
Ex-div: 17 Apr Payment: 20 May *Calculated on a market consistent embedded value basis | ||||
