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Mixed bag for Chesnara

Robust cash generation is a good indicator of near-term dividend cover, but negative investment market moves are a longer-term threat
September 28, 2020

At the end of June, closed life insurance book consolidator Chesnara (CSN) had £77.1m in cash and other liquid assets on its balance sheet. That was a small uptick on the 2019 year-end, and reflected £35.2m-worth of dividends received from subsidiaries. Another £5m has come in since the mid-year.

IC TIP: Buy at 278p

Investors who own the shares for income can therefore take comfort from a cash pile still large enough to cover annual dividends twice over. With the half-year distribution increased, an unbroken track record of dividend increases dating back to 2004 looks set to survive the year of the pandemic.

Other first-half financial metrics are less positive. Though the value of Chesnara’s investments has partially recovered since a first quarter nadir, the mark-to-market valuation of the insurance business – reflected in the group’s economic value – contracted from £670m to £604m. That was despite a £21.9m foreign exchange gain reflecting sterling’s depreciation against the Swedish krona.

New business generation, while still profitable, has also been hit. Lower brokerage activity and a wait-and-see approach from corporate pension trustees led to falling demand in Sweden, while a hitherto-robust protection market in the Netherlands is reportedly slowing. Material improvements are not expected in 2020.

Panmure Gordon expects economic value to contract to 400p this year, and to 387p in 2021.

CHESNARA (CSN)   
ORD PRICE:278pMARKET VALUE:£418m
TOUCH:276-287p12-MONTH HIGH:351pLOW: 200p
DIVIDEND YIELD:7.7%PE RATIO:23
NET ASSET VALUE:313pSOLVENCY II RATIO: 162%
Half-year to 30 Jun Net premiums (£m) Pre-tax profit (£m) Earnings per share (p) Dividend per share (p) 
201911266.636.27.43
2020119-9.07-4.57.65
% change+7--+3
Ex-div:08 Oct   
Payment:13 Nov