The hefty slide in Just Retirement's (JRG) reported half-year profit isn't as grim as it looks, reflecting an earnings boost driven by tightening bond spreads in 2012. Underlying operating profit fell by a more sedate 7 per cent year-on-year to £47.3m - beating analysts' expectations.
The group provides enhanced annuities, which offer better payouts than ordinary annuities, to those with health problems and lifestyles, like smoking, that are calculated to reduce life expectancy. But business isn't exactly booming. The operating profit slippage reflected a 14 per cent slide in annuity sales, while total new business sales fell 4 per cent.
Management insists regulatory change is to blame. Specifically, Just Retirement saw a rush from men to buy annuities before gender neutral pricing was introduced, as well as from advisers writing business before commissions were banned by the Retail Distribution Review. That meant a big chunk of business was brought forward into 2012 that would otherwise have been written in 2013 - making for tough comparatives.
Management believes sales are now recovering as that distortion works through. Regulatory efforts to encourage consumers to shop around for savings products, rather than sticking with the big life-insurance brands, should also support demand for the niche operator.
Nomura expects adjusted full-year EPS of 14.4p (from 11p in 2013), embedded value of 186p and a 2.4p dividend.
JUST RETIREMENT (JRG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 266.75p | MARKET VALUE: | £1.25bn | |
| TOUCH: | 265.25-266.25p | 12-MONTH HIGH: | 258p | LOW: 185p |
| DIVIDEND YIELD: | nil | PE RATIO: | 28 | |
| NET ASSET VALUE: | 160p | EMBEDDED VALUE: | 178p | |
| Half-year to 31 Dec | Gross premiums (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 759 | 57.2 | 12.4 | nil |
| 2013 | 651 | 26.5 | 5.6 | nil |
| % change | -14 | -54 | -55 | - |
Ex-div: na Payment: na | ||||
