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Chesnara cash generation hit by lower investment returns

However, the closed book life insurance specialist still raised the final dividend
Chesnara cash generation hit by lower investment returns
  • Final dividend increased by 3 per cent
  • Cash generation down, but still covers dividend 150 per cent

Lower interest rates and the strain of writing new business meant Chesnara (CSN) suffered a reduction in cash generation of almost a quarter last year. However, that still covered the increased dividend by a multiple of around 1.5.  

Prior to dividends, the economic value of the group – representing the present value of future profits of the existing insurance business – ended the year flat, as weaker investment market returns and subdued new business activity offset foreign exchange gains. 

A reduction in activity among brokers and increased circumspection from corporate pension trustees meant new business generation also suffered, with Swedish business Movestic reporting the largest fall in new business profits.  

Encouragingly, management has guided towards higher dividend receipts from its divisions this year, which bodes well for shareholder returns. Panmure Gordon forecasts a dividend of 22.6p a share for 2021, rising to 23.3p the following year. Positive cash generation and a healthy Solvency II position indicate the income case still appears solid. Buy.

Last IC View: Buy, 278p, 28 Sep 2020

CHESNARA (CSN)   
ORD PRICE:273pMARKET VALUE:£ 410m
TOUCH:270.5-274.5p12-MONTH HIGH:351pLOW: 245p
DIVIDEND YIELD:8.0%PE RATIO:19
NET ASSET VALUE:325pSOLVENCY II RATIO:156%
Year to 31 DecNet premiums (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201664.640.727.819.49
201717789.652.420.07
201821927.016.120.67
201922496.152.821.30
202025024.614.121.94
% change+12-74-73+3
Ex-div:08 Apr   
Payment:24 May