Closed-life fund specialist Phoenix (PHNX) has continued to throw-off hefty amounts of cash. Cash generation reached £332m in the first half - over half way to the £500m-£550m target for 2014 - and a further £390m was received after the period-end from the sale of fund manager Ignis.
Crucially, this pushed the (pro forma) gearing ratio down to 35 per cent. That’s well below the 40 per cent level at which Phoenix is prepared to press ahead with further closed life fund acquisitions. It should also help the company obtain an investment-grade rating and therefore to access debt capital markets for funding once appropriate deals have been identified. Suitable acquisitions shouldn’t be in short supply. In April, management said there was around £200bn of assets within UK closed life funds.
Meanwhile, the impact of recent regulatory moves appears modest. The FCA is currently exploring whether life sector customers in closed books are being disproportionately charged to support new business. As Phoenix writes very little new business, however, management isn’t worried. The group does expect the take-up of guaranteed annuities to decline 20 per cent as a result of the Budget Day reforms. But here, too, the damage will be small, given how little new annuities business the company does.
JP Morgan Cazenove expects full-year EPS of 46.6p (from 68.4p in 2013) and year-end embedded value of 1,158p a share.
PHOENIX (PHNX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 735p | MARKET VALUE: | £1.65bn | |
| TOUCH: | 735-736p | 12-MONTH HIGH: | 810p | LOW: 562p |
| DIVIDEND YIELD: | 7.3% | PE RATIO: | 5 | |
| NET ASSET VALUE: | 916p | EMBEDDED VALUE: | 1,035p | |
| Half-year to 30 Jun | Gross premiums (£m) | Pretax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 672 | -13 | -3.0 | 26.7 |
| 2014 | 513 | 290 | 72.3 | 26.7 |
| % change | -24 | - | - | - |
Ex-div:03 Sep Payment:02 Oct | ||||
