Chesnara keeps upping the dividend

Despite the reporting changes that have played havoc with insurance company income statements this year, Chesnara (CSN), which specialises in buying up and running off the unwanted life insurance books of larger insurance companies, could afford to increase its interim dividend for a record 19th year in a row. The company bedded in a series of acquisitions during the half – Conservatrix in the Netherlands, plus the acquisition of a protection book from Canada Life in the UK – and seemed to benefit from buoyant conditions in other parts of the industry. 

Like certain types of marine life, the company cannot afford to stand still, but it is being helped by a boom in the pension transfers creating a capital hunger that Chesnara, with its solvency ratio well above its 140-160 per cent target, can satisfy by buying up the smaller portfolios that big insurers no longer want, and thereby fund the lucrative transfer of defined benefit pension schemes.

This is particularly important at a time when the cost of capital is now much higher. The surplus implied by its 205 per cent ratio is around £345mn, giving the company further firepower for acquisitions. Meanwhile, cash generation at both the base and commercial levels was positive at £11.1mn and £21.8mn, respectively.

Analysts at Peel Hunt note that Chesnara shares are currently trading at an implied discount of 0.8 times its tier 1 NAV. The broker forecasts EPS of 27.3p for 2023, giving a price/earnings ratio of 10 and dividend yield of 9 per cent. Great for income. Buy.

Last IC view: Buy, 285p, 30 Mar 2023