Income investors circling the 10% yielding Phoenix Group Holdings (LSE:PHNX) have been joined by directors of the Standard Life owner after they made insider purchases totalling £190,000.
An investment of £100,000 connected to chief executive Andy Briggs led the way, while chair Alastair Barbour spent £40,000 and two non-executives committed £25,000 each.
Their moves, which took place on Thursday and Friday, were priced between 473p and 478p after shares began trading without the value of the forthcoming interim dividend of 26p.
That payout worth a total of £260 million represents a 5% rise on a year earlier, and as we reported last week, is due to land in shareholder accounts on 23 October. The company is the UK’s largest long-term savings and retirement business, managing £269 billion of assets on behalf of about 12 million customers.
The outlook for future dividend payments was boosted last month when results showed new business written in the first half of the year is set to generate £885 million of cash over its lifetime, double that written in the same period last year.
Analysts at Bank of America said the figure was 55% higher than it had expected and 71% ahead of the City consensus. The upside surprise means Phoenix has already met its full-year threshold of £800 million new business long-term cash generation to offset the run-off of its back book and support dividend growth.
As well as being on track to achieve overall cash generation at the upper end of management’s targeted £1.3-£1.4 billion range, there was also encouragement that Phoenix has £800 million of debt capacity for deal-making activity.
Sun Life of Canada UK was bought for £250 million in April and has seen good initial progress with £46 million of cash generation remitted within the first three months, equating to 20% of the purchase price.
Bank of America added last month: “M&A can generate value for Phoenix and it stands ready with firepower for more deals today. However, after few deals in the past three years, we think investors are impatient and increasingly sceptical on M&A upside.”
The bank recently disclosed a target price of 620p, while counterparts UBS highlighted 580p after reviewing last week’s supplementary release of half-year figures based on IFRS 17.
Under this newly implemented accounting standard, total profit is unchanged over the lifetime of a contract but the timing of when profit emerges is different. There’s no impact on the company’s strategy or dividend and it continues to focus on delivering cash and capital.
- The four FTSE 100 income stars returning big money in October
- ii view: income play Phoenix Group raises the dividend
- Shares for the future: what do you think of my best idea so far?
UBS said the main investor concern in relation to IFRS 17 earnings appeared to be that recurring group losses will mean that Phoenix does not cover its dividend cost, leading to a structurally increasing debt ratio.
However, the bank’s note references the company’s comments that IFRS17 does not impact Phoenix's dividend policy given its focus on delivering cash generation. UBS added: “Phoenix screens cheap with a 10%+ dividend yield and we remain Buy rated.”
It’s a view shared by interactive investor customers after Phoenix ranked as Friday morning’s second most traded stock on our platform, 95% of which were “buy” orders.
Bargain hunting at power firm
Drax Group (LSE:DRX) directors including boss Will Gardiner have bought £130,000 of shares in response to a sharp fall in value for the FTSE 250-listed biomass power station business.
The purchases were made at prices between 430p and 452p, which compares with 550p in mid-September. Selling accelerated last week when it emerged that hedge funds including Shadowfall Capital had short positions equivalent to 3.4% of the company.
Jitters around the valuation haven’t been helped by the recent disclosure that the National Audit Office planned to scrutinise the government’s biomass strategy and whether subsidies offer value for money.
The company’s Drax power station near Selby in North Yorkshire, where the use of biomass pellets reduces carbon emissions by 80% compared to coal, remains the UK's single largest provider of renewable energy. Its generation performance helped overall underlying earnings to more than double in the first half of the year to £453 million.
In May, Drax updated investors on the opportunities around bioenergy with carbon capture and storage (BECCS), which is the process of capturing and permanently storing carbon dioxide from biomass energy generation.
It sees the potential for 20 million tonnes a year of carbon removal as part of a £7 billion investment plan for US and UK BECCS, pumped storage hydro and an expansion of the biomass supply chain.
Broker Liberum, which has a 900p price target, said recently: “Competition exists from other renewable focused suppliers; however, Drax has a strong position both in the UK power market and as a global first mover in BECCS.”
Shares closed the week at 438.5p but JPMorgan recently highlighted an “overweight” recommendation and target of 740p, albeit down from 830p previously.
On Friday, the company is due to pay an interim dividend of 9.2p a share worth £36 million, representing 40% of the expected full year dividend. That means Drax currently yields about 5%.
Gardiner and finance boss Andy Skelton both spent £50,000 on shares, while board member John Baxter made an investment worth £33,000. The former BP head of engineering and process safety has been a non-executive director since 2019.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.