ii view: life insurer Phoenix Group celebrates record results

A new positive dividend policy and a yield of over 7%. We assess prospects for this life and pensions industry consolidator.

Full-year results to 31 December 2021

• Operating profit up 2.6% to £1.23 billion 
• Record cash generated of £1.717 billion
• Assets under administration up 1% to £310 billion
• Final dividend of 24.8p per share
• Total dividend for the year up 3% to 48.9p per share

Chief executive Andy Briggs said:

"It has been an outstanding year for Phoenix, with a record set of financial results and significant strategic progress made as we fully embraced our purpose. 2021 marked a pivotal moment for Phoenix, with £1.2 billion of new business from our Open business more than offsetting the run-off of our Heritage business for the first time. This demonstrates that Phoenix is a growing, sustainable business, and enabled the Board to recommend our first ever organic dividend increase of 3%. Phoenix has also today announced a new dividend policy which sets out our intention to pay a dividend that is sustainable and grows over time."

ii round-up:

Life and pensions industry consolidator Phoenix Group (LSE:PHNX) today announced record results, helping it to declare both a 3% increase in the final dividend and a new growth orientated dividend policy. 

Record cash generation over the year of £1.72 billion exceeded its targeted £1.5-£1.6 billion, while operating profit for the full-year 2021 rose 2.6% to £1.23 billion. The dividend policy is being upgraded to a sustainable payout that grows over time from one which was dependent on two financial measures being achieved. 

Phoenix shares rose by more than 2% in UK trading having fallen by more than 10% over the last year. Shares for the heavily restructured Aviva (LSE:AV.) are up by around 6% over that time, while shares for Hong Kong and Asia focused Prudential (LSE:PRU) are down by around 30%.

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Phoenix has bought and integrated over 100 legacy insurance brands. It operates both closed or heritage and open businesses. The heritage business comprises products that are no longer marketed to customers, and where Phoenix has stepped in as the custodian of the policies.

Organic growth from its open business more than offset the natural run-off of its heritage business during this latest record financial year, underpinning the change in dividend policy. Its open business brands being sold to customers today include SunLife, for which it sells a range of financial products specifically for the over 50s.

New business long-term cash generation of £1.18 billion proved to be a new record and was up from £766 million in 2020. This included £950 million from its Bulk Purchase Annuities (BPA) business, an increase from £522 million a year ago. The rising cost of providing staff pensions has also seen many companies closing and then offloading their obligations via bulk purchase annuities to outside entries such as Phoenix Group. 

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Phoenix has been investing in its capabilities and leveraging the Standard Life brand that it acquired previously during the year. Total assets under administration rose to £310 billion from 2020’s £307 billion. 

ii view:

Intense competition and pressure on life and pensions providers to reduce costs has allowed Phoenix to grow via acquisitions and then strip costs. Once well-known brands such as Pearl Assurance and Abbey Life are now part of Phoenix. Its open business today includes workplace pensions and customer savings divisions, and a retirement solutions business which encompasses both vesting annuities and its bulk purchase annuity business. 

For investors, uncertainties about both geopolitical tensions and the economic outlook remain worthy of consideration. Many cost saving synergies have already been achieved, while competitors such as Legal & General (LSE:LGEN) are not standing still. 

That said, the new emphasis on a progressive dividend policy is favourable, and a historic and forecast dividend yield of over 7% is difficult to ignore in the current ultra-low interest rate environment. Its previous buying of the Standard Life brand name and use of its investment management services also looks to be helping generate sales. In all, and having achieved record results, Phoenix shares are likely to remain attractive to long-term income investors. 

Positives: 

• Record cash generation in its last financial year
• Attractive dividend payment (not guaranteed)

Negatives:

• Regulatory changes can impact
• Uncertain economic outlook

The average rating of stock market analysts:

Buy