Chesnara maintains a generous dividend

Reported figures are almost an irrelevance in describing the performance of closed-book insurance consolidator Chesnara (CSN), which despite a bare reported profit actually managed underlying cash generation that was 14 per cent higher at £53mn. The results were therefore solid, with the sense that management is maintaining a balance between keeping the dividend payout progressive, whilst leaving surplus capital that could be used for more M&A this year.

It is an interesting time for insurance consolidators as the larger players have decided to concentrate on organic capital generation and deploying excess capital to the bulk annuities market, while the private equity houses that had posed a threat to the flank have melted away as interest rates have risen. This leaves Chesnara with the M&A field largely to itself, with £146mn of cash in the bank and a further £150mn of revolving credit that could be used to fund a larger single acquisition. The company also has time on its side, with no need to refinance its credit facilities for another eight years.  

“We don’t see a trade-off between the dividend and M&A and our shareholders, whether institutional or retail, value the consistency of our progressive dividend policy”, said chief executive Steve Murray, “After all, no one is in the insurance consolidation business just for the kicks”, he added.   

The dividend looks secure with the company’s divisional cash of £50mn easily covering the £35mn cost. The shares are rated at 13.3-times Panmure Gordon's forecast earnings, with a dividend yield of 9.5 per cent. If Chesnara can continue to pay out, while still expanding its book, which looks likely based on these results, then the price and risk premium for income investors looks attractive. Buy.

Last IC view: Buy, 275p, 21 Sep 2023