Phoenix Group’s [PHNX.L] share price has performed well this summer. Since hitting a 52-week low on 5 July, the stock has soared 19.8% and is currently up 10.4% year-to-date, closing Friday 12 August at 680.8p. While that performance isn’t quite as good as fellow UK insurer Legal and General’s [LGEN.L] 13% gain this year, it trounces the returns of both Prudential [PRU.L] and the wider FTSE 100. A decent set of interim results on Monday 15 August could push Phoenix Group’s stock higher.
Phoenix Group buys Sun Life’s UK business
In the run up to Phoenix’s interim results came the news that it is buying Sun Life’s UK business for £248m. Sun Life UK has more than £10bn of assets under management and more than 480,000 active policies. The deal is expected to complete in the first half of 2023 and could deliver £470m in long-term cash generation. An added bonus is that Phoenix said the deal would allow it to up the group dividend by 2.5% starting with 2022’s final dividend. More insight on this will be closely watched in the interim results.
What to look for in Phoenix Group’s interim results
Phoenix Group is financially in a good place to spend on acquisitions, having delivered record operating profits last year. In 2021 the insurer delivered cash generation of £1.7bn, exceeding an expected £1.5bn to £1.6bn. Its open business delivered record long-term cash generation of £1.18bn, up 55% from 2020.
“2021 was a pivotal year for Phoenix as we demonstrated that we are a growing, sustainable business with our Open business delivering organic growth that more than offsets the Heritage run-off for the first time,” said chief executive Andy Briggs.
Acquisitions are a core feature of Phoenix’s business strategy. Phoenix buys heritage pension and maturing plans that are no longer open to new business. It then puts the plans on its own platform to cut costs and maximise profit. Phoenix estimates that the opportunity in the UK is worth £480bn opportunity in the heritage M&A market as insurers dispose of legacy books.
Other areas to keep tabs on are Phoenix’s plans in workplace pensions, retirement planning and bulk purchase annuities. It estimates each of these markets could be worth £40bn annually in future market flows.
Also watch out for how Phoenix Group is getting on in its aim for cash generation of between £1.3bn and £1.4bn in 2022, rising to £4bn by 2024. A positive update on this during the results could drive Phoenix Group’s shares higher.
Phoenix Group’s business strategy is pinned on organic growth generating new business and inorganic growth through mergers and acquisitions — something that paid off handsomely last year. How this strategy has progressed for the first six months of 2022 will be worth watching.
For income seekers any word on Phoenix Group’s hefty dividend will be top of mind. In 2021 the company rewarded shareholders with a 48.9p final dividend, up 47.5p from the year before. At the time Phoenix Group said that the “board pays a dividend that is sustainable and grows over time”.
Ahead of the results, JP Morgan Cazenove analysts downgraded Phoenix Group shares from ‘overweight’ to ‘neutral’. In an investment note, the analysts said that while the company had grown in the UK’s pension risk transfer (PRT) market, its “overall cash flow growth is still relatively limited”. JP Morgan reduced its price target on the stock from 800p to 775p. In the same note, Legal and General got an upgrade while M&G [MNG.L] was downgraded.
Still, JP Morgan’s price target is one of the highest out there. Of the 17 analysts polled by the Financial Times, the median price target is 750p, suggesting a 10.6% increase on Friday’s close.
Disclaimer Past performance is not a reliable indicator of future results.
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