Friends Life (FLG) - formerly Resolution - suffered an undeniably tough first half. Not only did the group's modest international business see a near halving in the value of new business, but this year's UK pension reforms are beginning to hurt.
The value of new business slumped 24 per cent to £65m. That was significantly driven by collapsing annuity sales following the chancellor's Budget-day decision to scrap compulsory annuity purchases. Further annuity-related pressure is likely, too. During the second half, management is braced for sales of guaranteed annuity options to continue falling towards a level that's 20 per cent below pre-Budget sales, while non-guaranteed annuity sales could fall to 50-70 per cent below pre-Budget levels.
It's a comfort, at least, that the group's cash-generative qualities have remained intact. In fact, sustainable free cash surplus (Friends Life's own measure of cash) jumped 15 per cent to £163m, although that was 7 per cent below analysts' consensus estimates. Moreover, the group announced an uplift in the size of its planned share buy-back programme, from £261m to £317m. "That this has been allowed by the UK regulator would appear to support our view that the group has substantial excess capital," noted analyst Oliver Steel of Deutsche Bank.
Prior to these figures, JPMorgan Cazenove had been expecting a full-year loss per share of 4.1p (from EPS of 14.4p in 2013) and embedded value of 437p a share.
FRIENDS LIFE (FLG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 322p | MARKET VALUE: | £4.6bn | |
| TOUCH: | 321-322p | 12-MONTH HIGH: | 384p | LOW: 267p |
| DIVIDEND YIELD: | 6.6% | PE RATIO: | 32 | |
| NET ASSET VALUE: | 349p* | EMBEDDED VALUE: | 404p | |
| Half-year to 30 Jun | Gross premiums (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 1.04 | 367 | 3.8 | 7.05 |
| 2014 | 0.95 | 80 | -2.3 | 7.05 |
| % change | -9 | -78 | -161 | - |
Ex-div: 27 Aug Payment: 6 Oct *Includes intangible assets of £3.3bn, or 232p a share | ||||
