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Phoenix beats on cash generation

The closed book life assurance consolidator boosted its cash generation after making two acquisitions last year
March 21, 2017

For investors in Phoenix Group (PHNX), its ability to grow cash generation to support its dividend is one of the most important considerations when assessing performance. To that end, the acquisition of Axa Wealth's pension and protection business helped push up cash generation to £486m last year - surpassing the £450m upper end of its target range. Management now hopes to generate cash of between £1bn and £1.2bn by the end of 2018.

IC TIP: Buy at 804.5p

The closed life assurance business consolidator expects annual cost synergies of between £13m and £15m from the Axa Wealth business, higher than the £10m initially expected. Management expects to complete its integration of Abbey Life by the end of next year and save costs of £7m a year.

Management carried out additional hedging against low interest rates in order to protect its Solvency II position. Its coverage ratio (of regulatory capital above that required) increased to 170 per cent from 154 per cent in 2015. However, the lag between hedging activity and related gains weighed on pre-tax profits. This will be balanced out in later accounting periods, says finance director James McConville.

Analysts at Numis expect adjusted net assets of 898p a share at December 2017.

PHOENIX GROUP HOLDINGS (PHNX)

ORD PRICE:804.5pMARKET VALUE:£3.16bn
TOUCH:804-804.5p12-MONTH HIGH:812pLOW: 610p
DIVIDEND YIELD:5.9%PE RATIO:na
NET ASSET VALUE:848pSOLVENCY II RATIO:170%

Year to 31 DecGross premiums (£bn)Pre-tax profit (£m)Earnings per share (p)*Dividend per share (p)*
20121.6134220942.4
20131.3324175.647.5
20140.9846586.247.5
20150.9015276.147.5
20160.99-70-34.347.6
% change+10---

Ex-div: 30 Mar

Payment: 15 May

*Adjusted for 7:12 rights issue except final 2016 dividend