Is the income-themed investment case for shares in Chesnara (CSN) intact? The answer, as the life insurance and pension consolidator’s half-year results suggest, is ‘yes’ – plus a few caveats.
In the six months to June, economic value – that is the present value of the existing insurance business’ expected future profits, plus the adjusted net asset value of the non-insurance division – rose 3 per cent to £645m, or 430p a share. Annualise first-half economic value earnings of £47m, and last year’s shareholder distribution would be covered more than three times over.
However, cash generation was weaker than expected. Whereas in the first half of 2018, Chesnara benefited from £20m of releases, the group was forced to set aside a £13m ‘symmetric adjustment’ to its Solvency II capital requirement this time, after equity and bond markets picked up steam. But even without this movement, cash generation (and with it the dividend) continues to rely on the UK business, which is in run-off.
Aside from a £1.7m contribution from the Waard division, rising capital requirements meant cash generation in both Sweden and Netherlands was negative, while new business profits remain subdued. In turn, this dials up the need for deal-making, though a rise in seller’s valuations suggests near-term inorganic growth could prove elusive.
Analysts at Peel Hunt forecast economic value of 410p per share by the year-end, declining to 385p by December 2020.
| CHESNARA (CSN) | ||||
| ORD PRICE: | 292p | MARKET VALUE: | £ 438m | |
| TOUCH: | 286-292p | 12-MONTH HIGH: | 393p | LOW: 269p |
| DIVIDEND YIELD: | 7.2% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 318p* | SOLVENCY II RATIO: | 155% | |
| Year to 30 Jun | Net premiums (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 116 | 26.5 | 14.6 | 7.21 |
| 2019 | 112 | 66.6 | 36.2 | 7.43 |
| % change | -4 | +151 | +149 | +3 |
| Ex-div: | 05 Sep | |||
| Payment: | 11 Oct | |||
| *Includes intangible assets of £318m, or 115p a share. | ||||
