Acquisitions are a vital part of income play Phoenixs (PHNX) ability to continue growing its cash generation and therefore its dividend. However, last years acquisition of Axa Wealth has proved more beneficial than expected, generating another £165m during the first six months of the year. That takes the total amount generated by the closed book life assurers latest purchase to £282m, above the £250m targeted within the six months of completion. Annual cost synergies are also expected to be between £13m and £15m, up from the £10m anticipated.
That helped take total cash generation up to £360m, more than double the same time last year and beating consensus expectations of £333m. Management actions, including reducing expenses contributed £69m to operating profit, which also doubled year on year. Actuarial assumptions were updated to reflect lower longevity rates experienced across the industry, which also contributed.
Management also announced plans to cut annual fees on its workplace pension products to 1 per cent at the end of 2017. It took a resultant £28m provision against the profit impact.
The capital surplus increased from £1.1bn at the year-end to £1.7bn at the end of June, leaving plenty of space for further acquisitions. Analysts at Shore Capital expect adjusted net assets of 617p a share at 31 December 2017, down from 684p at the same time in 2016.
The shares are up solidly on our buy tip (582p, 10 Apr 2014) and trade at 1.3 times forecast net assets, a more demanding valuation than at the full-year results. However, the group is progressing well against its cash generation target of £1bn-£1.2bn between 2017 and 2018. With a forward yield of 6.4 per cent, we remain buyers.
"Shore Capital: Phoenix income attractions considerable
Cash generation and operating profits at insurer Phoenix (PHNX) continue apace, meaning the income attractions remain considerable, says Shore Capital.
Analyst Eamonn Flanagan reiterated his buy recommendation on the stock, which was flat at 775p yesterday.
He said interim results were better than the market expected and the cash generating abilities of Phoenix remain resilient with the group on target to deliver between £1 billion and £1.2 billion in 2017.
Trading at a mere c.15% premium to our 2017 forecast net asset value of c.670p with a 6.5% forward yield, we reiterate our buy recommendation, said Flanagan.
The income attractions remain considerable and secure, with the company committed to protecting its dividend paying ability as part of any deal criteria. "
Apologies for the sp mistake in prev post, should have read 25.1p per share divd.
After the rights issue, (where I took up my full quota), my overall cost per share went from 742.5p to 656.5p, and the yield on cost went up from 6.6% to 7.46%.
No complaints from me! Long may the Board continue to do their stuff!
Just make sure there are no "Provident Financial" moments please!!
Happy to be corrected but I believe it's to do with the rights issue back end of last years to fund the purchase of Abbey Life (?). Rights shares were offered at 508p each which briught the overall value of a single consolidated share price down to c.735p from c.870p. So yes, the 23.9p and 25l1p divs in 2017 were less than the 2x26.7p per share in 2016, but as the consolidated share price was markedly lower, it was in effect a dividend increase. Er, I think!
Yes. Very happy with the results. This is my largest single company share holding and I'm very happy to get a 6% plus yield from what is a pretty low risk business. Pleased with the div increase too. The ideal retirement share IMHO.
Looking back to 2014, the much smaller company was reorganising multiple debts into a single structure of £1.7 billion senior notes. The hope was to reduce the pricing of this pile as the percentage of debt in the company accounts fell and if/when Phoenix achieved an investment grade rating.
What a pleasure therefore to read of grade A awarded on the relative hummock of senior debt
needed by the company for the greatly increased assets covered.
Well done to all the employees for their efforts. Also what a pleasure to read of an organisation minimising their exposure to the debt disaster unfolding worldwide.
The phoenix is struggling to fly to the moment. Can't find any genuine reason for the fall over the last few days. Expected to be 25p off with the ex-divi passing but 70p? I'll give it a couple of days, if no news comes out & there's no change I think I'll have to have a sneaky top-up at this price.
The final dividend is the revised figure as advised by the company following the take over of Abbey.The lower dividend is due to the issue of additional shares at a discounted price in the rights issue.
See comments made on this board in January re dividend.
We didn't make the 28p divi but 23.9p is very good for my pension income so many thanks to the bod. Looks like we are firing on all cylinders and racing forward.Very much a long term hold for me - love the income.
Shares have made a good recovery from the lows of about 700 following the rights issue and are approaching a typical share price of 840 over the 2 years prior to the rights issue.
Even relative to the high price of about 880 prior to rights issue those that subscribed to the rights issue are now sitting on an overall 5% profit. And those that bought additional shares when the shares dropped to about 700p following the rights issue will be even more in profit.
Deutsche bank has upgraded its recommendation for Phoenix Group Holdings (PHNX), believing the market under-estimates the life insurance consolidators capacity to make another value-enhancing acquisition this year.
Insurance analyst Oliver Steel lifted the stock to buy from hold, but lowered his share price target to 835p from 870p, explaining the purchases of the AXA Wealth and Abbey Life legacy pension businesses last year left Phoenix in a strong position to snap up another closed book of policies this year.
Phoenix has finally emerged from seven years of balance sheet recovery with the announcement of two acquisitions in 2016. We think investors are under-estimating the rapid improvement in solvency and debt capacity over 2017e- 2018e, said Steel.
Specifically, we think a hypothetical £1 billion - £1.5 billion acquisition could be funded principally out of cash and debt rather than equity, adding either side of 25% to future value - something that in our view is not sufficiently reflected in the current share price. Reflecting this, we lift our recommendation to buy with a 835p price target, the analyst said.
Steels comments follow a trading update earlier this month in which Phoenix revealed it had generated £486 million of cash in 2016, £117 million from the two acquired businesses. It reports full-year results in March. The shares softened 0.9p yesterday to 743.6p."
Thanks for your explanation PJ, which I think I understand. I applied and recd the full allotment on the rights issue and my reading of the prospectus wasn't as diligent as perhaps it should have been. I'd better go back and redo my sums on total shares in issue before and after the rights issue and see where I made my error.
Worked out total shares in issue before and after, and thought I'd cracked it. Obviously not.
OK - so both jonwig1 and TX2 are quoting from p56 of the prospectus. Let's see what it says in full:
"Increase in the Groups dividend:
The Company paid a full year dividend in respect of 2015 of £120 million, equating to 53.4 pence per share. In respect of 2016, the Company paid an interim dividend in line with the 2015 dividend of £66 million (or 26.7 pence per share), of which £6 million related to the additional dividend payable in respect of the shares issued in connection with the AXA Transaction. As a result of the AXA Transaction, the Board is expecting to increase the final dividend in respect of 2016 to £69 million (equating to an increase of 5 per cent. to the dividend per share). Given the additional shares to be issued in connection with the Rights Issue, the final dividend in respect of 2016 is expected to increase by a further £25 million to £94 million, resulting in a full year dividend in respect of 2016 of £160 million. The incremental cashflow generation from the Acquisition supports (subject to regulatory approval) a proposed increase in dividends in respect of 2017 to £197 million."
OK - that's clear. I'm going withTX2's view. The next dividend will be close to 94mil / 392.85mil.
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