Buying any stock right now feels like an act of blind faith. But for the risk-tolerant, there should be bargains. We think one suitable candidate could be Just Group (JUST), whose recovery from a disastrous period has been masked by the wide sell-off in equities. Last week the group published its full-year results, providing the strongest evidence to date that the retirement product specialist is turning around its business and rebuilding its capital levels. Relatively, insulated from falls in stock markets, and with a range of options to further de-risk its balance sheet, the stock’s 71 per cent discount to tangible net asset value of 181p is tempting.
Massive discount to NAV
Options to de-risk
Shareholder support
Capital coverage building
Lower business volumes
Capital sensitivity to property
Just Group’s principal marketed products consist of defined-benefit de-risking solutions for pension scheme trustees, guaranteed income products for individuals or couples, flexible pension plans for retirees, and equity-release mortgages for homeowners looking to cash in on some of the value in their property. While based on complicated actuarial assumptions, these products are designed to generate income over the long term, and are in strong demand.
Unfortunately, a good market for its products didn’t prevent Just from falling into crisis in 2018, when profits were badly dented by a change in mortality and property price assumptions. Worse, the group was caught badly short by Prudential Regulation Authority (PRA) plans to implement tighter capital requirements for equity-release mortgages. This forced the group to pull its dividend, part with its chief executive and raise £300m in tier one debt and £75m in new shares at 80p a year ago.
Shareholder faith is starting to be repaid. A goal to organically generate capital by 2022 – that is, profitably grow the size of in-force business – has already been achieved. In 2019, the group halved new business strain by reducing volumes by 12 per cent and targeting more capital-light products, while starting to cut a bloated cost base. Organic capital generation hit £36m, compared to consumption of £165m in 2018. At the same time, the company has swallowed the £219m in capital resources to adjust to the PRA’s higher capital requirements. £80m more is expected, which is £50m below the guidance indicated as recently as September.
What’s more, the sensitivity of the group’s capital position to property prices has been further de-risked by an innovative hedging arrangement, adding downside protection to Just’s solvency capital ratio. Those capital sources do not include equities, which should help insulate the group from recent stock market gyrations.
| Just (JUST) | |||||
| ORD PRICE: | 52.8p | MARKET VALUE: | £547m | ||
| TOUCH: | 52.8-52.9p | 12-MONTH HIGH: | 87.8p | LOW: | 35.3p |
| FORWARD DIVIDEND YIELD: | NIL | FORWARD PE RATIO: | 4 | ||
| NET ASSET VALUE: | 224p | SOLVENCY II RATIO: | 141% | ||
| Year to 31 Dec | Retirement income (£bn) | Pre-tax profit (£m)* | Earnings per share (p)* | Dividend per share (p) |
| 2018 | 2.17 | 210 | 18.3 | nil |
| 2019 | 1.92 | 219 | 17.6 | nil |
| 2020* | 1.94 | 179 | 14.0 | nil |
| 2021* | 1.96 | 187 | 14.6 | nil |
| % change | +1 | +5 | +4 | - |
| NMS: | 20,000 | |||
| BETA: | 2.89 | |||
| *Panmure Gordon forecasts, adjusted PTP and EPS figures | ||||
