Capital is the number one priority for Just Group (JUST) interim chief executive David Richardson, who has set a target for the retirement products specialist to self-fund by 2022. Half-year figures show some room for optimism, and plenty to justify current shareholder caution.
Just’s solvency capital requirement coverage ratio rose 13 percentage points in the period, helped in part by March’s capital raise, although since offset by falling house prices, falling risk-free rates and new business strain. At £47m, this strain has halved year on year, thanks to a 30 per cent “managed” decline in retirement income product sales. The 50 per cent drop in lifetime mortgage lending was characterised as a market “pausing for breath” by Mr Richardson.
This product line is also the source of Just’s biggest headache: an ongoing consultation by the Prudential Regulation Authority (PRA) on the appropriate level of capital equity release investors will need to hold from 2021. While the review is yet to complete, Just now estimates the eventual hit could be around £200m.
Thanks to the reinsurance of some defined benefit longevity risk, 35 per cent of this figure has now been set aside, although whether a so-called no-negative equity guarantee hedge arrangement can pass the regulatory smell test and make up the shortfall is unclear.
Panmure Gordon forecasts earnings per share of 14.5p in 2019, rising to 15.2p next year.
| JUST GROUP (JUST) | ||||
| ORD PRICE: | 40p | MARKET VALUE: | £411m | |
| TOUCH: | 39-40p | 12-MONTH HIGH: | 110p | LOW: 35p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 177p | SOLVENCY II RATIO: | 149% | |
| Half-year to 30 Jun | Gross written premiums (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 1.18 | 45.7 | 5.2 | nil |
| 2019 | 0.83 | 125 | 10.1 | nil |
| % change | -29 | +174 | +96 | - |
| Ex-div: | na | |||
| Payment: | na |
