Employee-benefits specialist, Personal Group (PGH), has been through a tough period. Uncertainty over the tax treatment of salary sacrifice saw a major slowdown at its Let's Connect business which arranges such schemes. And while legislation that was passed earlier this year has provided clarity that should ultimately allow growth at Let's Connect to resume, a large contract has been delayed for internal reasons with the client. But we view this disappointment as temporary and not a reason to overlook the group's growth potential or its generous dividend.
Very attractive dividend
Debt-free balance sheet
Strong growth prospects after Sage tie-up
Growing licence fee income
Salary sacrifice take-up being delayed
Revenue in 2017 to be lower than previously forecast
Personal Group offers its customers' employees about 8,000 in-house and third-party products and services, from about 60 supply lines. In-house services include employee insurance products (hospital, convalescence plans and death benefit) which make up its core business. It also provide home technology, such as iPads and TVs, through salary sacrifice. Third-party services include retail discounts, e-payslips, employee assistance, wellbeing programmes and salary sacrifice cars and bikes.
Personal Group's core insurance business, which accounted for 58 per cent of 2016 sales and almost all profits, is trading strongly. And despite the hiatus at the salary sacrifice business, interest in these schemes is strong as employers look for ways to retain scarce skilled workers. Not only do salary sacrifice schemes allow employees to fund purchases with monthly payment before national insurance, they also don't require any credit checks which is a boon for people with patchy credit histories.
| PERSONAL GROUP (PGH) | ||||
| ORD PRICE: | 409p | MARKET VALUE: | £126m | |
| TOUCH: | 405-413p | 12M HIGH: | 433p | LOW: 272p |
| FORWARD DIVIDEND YIELD: | 5.7% | FORWARD PE RATIO: | 16 | |
| NET ASSET VALUE: | 102p* | NET CASH: | £11.1m | |
| Year to 31 Dec | Net premiums (£m) | Pre-tax profit (£m)** | Earnings per share (p)** | Dividend per share (p) |
| 2014 | 24.1 | 10.6 | 26.9 | 19.6 |
| 2015 | 29.4 | 11.1 | 27.2 | 20.9 |
| 2016 | 31.2 | 10.8 | 27.7 | 22 |
| 2017** | 30.7 | 9.5 | 24.3 | 22.7 |
| 2018** | 32.2 | 10.2 | 26.1 | 23.2 |
| % change | +5 | +7 | +7 | +2 |
| Normal market size: | 500 | |||
| Matched bargain trading | ||||
| Beta: | 0.88 | |||
*Includes intangible assets of £11.8m, or 38p a share | ||||
| **Cenkos forecasts, adjusted PTP and EPS figures |
Future growth prospects have been given a boost by the successful development of a business platform called Hapi. Up until now, most of Personal Group's clients have been relatively large companies, but the flexibility of the Hapi employee benefits platform makes it viable to penetrate the SME sector. A sales tie-up with accounting and business management software giant Sage not only provides validation for the Hapi technology but also opens a vast market. Hapi, which is designed primarily for app deployment but is also accessible via the internet, is being offered to Sage customers that can sign up for a service fee. And since June, when the tie-up went live, more than 14,000 additional licences have been sold. But this is just the tip of the iceberg because Sage has access to 15.6m employees in the SME sector, which means that Personal Group’s addressable market has swollen to around 30m UK employees compared with just over 2m already signed up.
Personal Group's development costs are likely to fall now that the Hapi platform has been completed, although finances are already in a strong position, with no debt on the balance sheet and cash of £11.1m at the June half year. The dividend payment was increased in the first half, and the forecast yield for 2018 is a hearty 5.7 per cent and fully covered by expected after-tax earnings.
