ii view: Phoenix buoyed by pension off-loads

Does a 6%-plus dividend yield and pending acquisition make the pensions group worth a closer look?

Full-year results to 31 December 2019

• Group operating profit up 14.4% to of £810 million
• Cash generation up 6.5% to £707 million
• Total full-year dividend up 1.7% to 46.8p per share
• ReAssure acquisition on track to complete mid-2020

Chief executive Clive Bannister said:

"Phoenix has had a strong year - we beat our cash generation target, made significant progress in the transition of Standard Life Assurance and announced the £3.2 billion acquisition of ReAssure.  With circa £0.5 billion of incremental cash generation delivered from new business written in the year, we have demonstrated that our Open businesses and Bulk Purchase Annuities bring sustainability to Phoenix, offsetting the run-off of our in-force business. I am extremely proud of the evolution of Phoenix during my time as CEO and I would like to thank all of the colleagues I have worked with throughout to deliver benefits to both our customers and shareholders."

ii round-up:

Life and pensions industry consolidator Phoenix Group Holdings (LSE:PHNX) reported profits which beat analyst estimates in these latest results. 

The offloading of staff pension scheme obligations by corporations to life companies such as Phoenix helped drive the profit beat. 

Tracing its roots back to 1786, Phoenix has around 10 million policyholders. Its 2018 purchase of Standard Life Aberdeen (LSE:SLA) assurance business has now generated £33 million per year of cost savings, while total group assets under administration rose by nearly 10% to £248 billion. 

In late 2019, it agreed to buy its biggest rival ReAssure from Swiss Re (XETRA:SR9) in a £3.2 billion cash-and-shares deal. The acquisition is on track to complete by mid-2020.

Long-term cash generation guidance remains at £12 billion after 2019 cash remittance of £707 million. The five-year target was increased by £100 million to £3.9 billion. Cash generation is a measure of cash and cash equivalents remitted by the group's operating subsidiaries to the holding companies and is available to cover dividends, debt interest, debt repayments and other items.

It declared a final dividend payment of 23.4p per share, raising the total payment for the year by nearly 2% to 46.8p per share. 

Against a backdrop of oil price and coronavirus turmoil, the shares rose briefly by more than 1% in early UK market trading before being pulled lower by broader market concerns. 

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. Pearl Assurance and Abbey Life are now both part of Phoenix. Standard Life’s assurance division is now a work in progress while the ReAssure business sits in the pipeline. 

The rising cost of providing staff pension schemes has also seen many companies closing and then offloading their obligations via Bulk Purchase Annuities to outside entries such as Phoenix and Legal & General (LSE:LGEN). 

For investors, changes in the management team, including the retirement of the current chief executive, raise some uncertainties. On the upside, continued takeover execution and a prospective dividend yield of over 6%, not guaranteed, offer clear appeal. 

Positives: 

• On track to deliver its synergy target for its Standard Life acquisition
• Attractive dividend payment

Negatives:

• Changes in the management team
• Phoenix may fail to make further value adding acquisitions

The average rating of stock market analysts:

Buy