ii view: Phoenix Group raises cash generation expectations

Industry consolidator Phoenix sees a strong M&A pipeline.

Half-year results  

• Assets under administration up 8.5% to £245 billion
• Operating profit up 50% to £325 million
• Dividend payment up 3.5% to 23.4p per share

Chief executive Clive Bannister said:

“Having delivered £287 million of cash generation year to date, Phoenix expects to be towards the upper end of the £600 - £700 million 2019 target range. We also continue to make good progress across all phases of our transition programme and remain on track to meet the £1.2 billion total synergy target announced in March.

The life insurance sector continues to consolidate and the M&A pipeline remains strong. We are ready to do deals that meet our acquisition criteria and I am confident that Phoenix will continue to be the market leader in this consolidation process."

ii round-up:

Phoenix Group Holdings (LSE:PHNX) describes itself as Europe's largest life and pensions consolidator. It has a current stock market valuation of over £4.5 billion and approximately 10 million policies running.

The company reported solid progress in these half-year results. 

Operating profit jumped by 50%, with management now expecting full year cash generation to be at the upper end of its target range of £600 to £700 million. 

The group’s transition programme remains on track with cost savings continuing to be squeezed. 
Bulk purchase annuity liabilities of £0.5 billion have been won and contracted in. 

The group rewarded shareholders with a 3.5% increase in the dividend payment. 

The share price rose by over 2% in early afternoon UK stock market trading. 

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. 

The rising cost of providing staff pension schemes has also seen many companies closing and then offloading their obligations to outside entries such as Phoenix. A £1.1 billion buy-in from the PGL Pension Scheme provides a recent example.

For investors, a prospective dividend yield of around 7%, not guaranteed, offers appeal. Brexit and its potential impact on both its UK and Irish businesses provide near-term uncertainty.

Positives: 

• On track to deliver its synergy target for its Standard Aberdeen insurance business acquisition
• Contributions to its auto-enrolment workplace schemes increased

Negatives:

• Net outflow of funds totalling £6.6 billion
• Phoenix may fail to make further value adding acquisitions

The average rating of stock market analysts:

Buy