It's sa good time to be a life assurer. An improving economic backdrop will reduce pressure on consumers and, as rating agency Moody's points out, that will "free up expenditure on discretionary items such as life insurance". Better economic conditions are also likely to drive tighter monetary policy and the prospect of gradually increasing interest rates is good news, too. Specifically, it cuts "the risk of yields falling below the levels of policyholders' guarantees," notes Moody's. And an improving equity market backdrop will help support life assurers' investment portfolios. And St James's Place (STJ) looks especially well-placed to benefit, leaving its shares too modestly rated compared with peers.
- New business sales growing fast
- Wealthy customer base
- Impressive distribution network
- Lloyds share disposal ends uncertainty
- Nothing special about dividend yield
- Pensions business sales under pressure
St James's Place is focused on a wealthier segment of the UK life and pensions market than is usually the case at its life assurance peers - average holdings per customer, for example, stand at £104,000. Moreover, its distribution network - the St James's Place Partnership - is a unique asset within the life sector. The partnership comprises well-qualified but self-employed independent financial advisers (IFAs), and they're able to offer a more personalised service than is usually available from the sales staff of more conventional life assurers.
Moreover, partnership numbers have been boosted by 2012's introduction of the Retail Distribution Review (RDR) - which outlawed commission-based product sales. This put plenty of IFAs out of work, many of whom promptly took their talents to St James's - during 2013 partnership numbers rose by 9.5 per cent to 1,958. "SJP [St James Place Capital] has emerged from RDR in great shape, with a compelling proposition for battle-weary advisers and a product offering which appeals to its high-quality customer base," notes analyst Eamonn Flanagan at broker Shore capital. That superior service offering is, according to chief executive David Bellamy, "one of the major contributors to the recent growth of the business".
ST JAMES'S PLACE (STJ) | ||||
|---|---|---|---|---|
| ORD PRICE: | 790p | MARKET VALUE: | £4.1bn | |
| TOUCH: | 789-790p | 12-MONTH HIGH: | 799p | LOW: 473p |
| FWD DIVIDEND YIELD: | 2.7% | FWD PE RATIO: | 25 | |
| NET ASSET VALUE: | 176p | EMBEDDED VALUE: | 575p | |
| Year to 31 Dec | Gross life premiums (£m) | Net profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 78.5 | 55 | 11.4 | 6.00 |
| 2011 | 73.4 | 107 | 21.9 | 8.00 |
| 2012 | 66.1 | 107 | 21.5 | 10.64 |
| 2013 | 61.2 | 190 | 37.4 | 15.96 |
| 2014* | 70.0 | 175 | 32.1 | 21.55 |
| % change | +14 | -8 | -14 | +35 |
Normal market size: 3,000 Matched bargain trading Beta: 1.51 *JP Morgan Cazenove estimates | ||||
The company's impressive sales figures certainly support that view. For instance, in 2013 St James's Place saw its new business sales on an annual premium equivalent (APE) basis (a measure of gross sales) rise 20 per cent to £762.9m. In sharp contrast, Prudential's UK APE new business sales in the first nine months of the year slumped 12 per cent compared to 2012's comparative period. Sales of St James's proprietary investment product was especially robust and soared 35 per cent in 2013, although pension new business sales were flat reflecting regulatory changes that cut the lifetime allowance and annual contribution limits for pension tax relief. The asset management arm is growing strongly, too. After a £4.3bn net fund inflow during the year, assets under management rose 27 per cent in the year to £44.3bn. Overall, St James's grew underlying cash profit 67 per cent in 2013 to £139.9m. "The SJP engine is now purring nicely," believes Mr Flanagan.
The ownership structure is no longer a worry, either. For years, uncertainty over Lloyds' (LLOY) strategic attitude towards the group - in the light of the near 60 per cent stake in St James's that it inherited through 2008's acquisition of HBOS - had dragged on sentiment. But Lloyds sold virtually all of its shares through several institutional placings during the course of 2013, which has left St James's with a far more conventional shareholder structure. No single shareholder now owns more than 6 per cent of St James's, for instance, and the top five institutional shareholders own just over a quarter of the company.
Still, with a 2014 prospective yield of under 3 per cent, investors will certainly find better income prospects elsewhere in the life assurance sector. For instance, shares in Aviva (AV.) offer a 2014 prospective yield of well over 3 per cent, while those of Legal & General (LGEN) and Standard Life (SL.) yield over 4 per cent based on 2014's forecast payouts.
