Phoenix Group (PHNX) worked hard to reduce its leverage last year, using strong cash flows to repay £601m of debt. The UK's largest closed-life fund consolidator generated £567m in cash from operations, and raised a further £390m by selling its asset management arm Ignis.
But the outlook for future cash generation - which Phoenix needs to buy up further closed life books - is cloudier. Management set its target for the current year at £200m-£250m, less than half that generated in 2014 and even further down on the £817m generated in 2013. That reflects the new regulatory regime, Solvency II, which requires Phoenix's operating companies to hold more capital - at least in the short term. "This is only a timing issue: it does not affect the value of the business," insists chief executive Clive Bannister. He points out that the target of generating £2.8bn between 2014 and 2019 remains unchanged, and that Phoenix is already a third of the way there.
The company has been successful in reducing its gearing - shareholder debt as a proportion of gross embedded value - to 34 per cent, below the 40 per cent level seen as a barrier to further acquisitions. But Solvency II's capital adequacy rules make the company's bid for investment grade status more uncertain, casting a shadow on future deals.
Broker JP Morgan Cazenove expects adjusted EPS of 52.5p this year, compared with 138p in 2014.
| PHOENIX (PHNX) | ||||
|---|---|---|---|---|
| ORD PRICE: | 842.5p | MARKET VALUE: | £1.9bn | |
| TOUCH: | 841-842.5p | 12-MONTH HIGH: | 874p | LOW: 562p |
| DIVIDEND YIELD: | 6.3% | PE RATIO: | 9 | |
| NET ASSET VALUE: | 1,051p* | EMBEDDED VALUE: | 1,176p | |
| Year to 31 Dec | Gross premiums (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 1.53 | 91 | 20 | 42.0 |
| 2011 | 1.47 | -4 | -76 | 42.0 |
| 2012 | 1.61 | 342 | 235 | 47.7 |
| 2013 | 1.33 | 241 | 85.3 | 53.4 |
| 2014 | 0.98 | 465 | 96.7 | 53.4 |
| % change | -26 | +93 | +13 | |
Ex-div: 26 Mar Payment: 27 Apr *Including intangibles of £1.69bn, or 752p per share | ||||
