Chesnara Share Discussion Threads

[huntie2] 20/4/2010 10:49

hmm.........what's happening with these, anyone? bit more than XD!

[banj] 14/4/2010 11:45

Holdin up well.

[jonwig] 10/4/2010 11:57

A thread for Phoenix Group [PHNX] which is an interesting alternative to CSN:

[jonwig] 09/4/2010 14:29

Robsy, Topvest did say 'Phoenix' (ie. PHNX) which is the UK's largest closed life and pension fund consolidator.

PRLG was its previous incarnation.

[robsy2] 09/4/2010 12:34

No that's PRLG !!

[robsy2] 09/4/2010 11:45

Thanks!
I was attracted to CSN because it was a Zombie fund, now CSN has changed its spots a bit it got me thinking more about open funds. I have some professional contact with HSD and it is a tightly run ship and they have demonstrated over the years that they know their business.The future is as always unwritten but the parameters , strong cash flow, low cost business model, know-how, piles of cash, no gearing and steady growth all support the sustainability of the high yield.
I am still onboard with CSN but I don't see the share price racing ahead much from here.....

[jonwig] 09/4/2010 10:33

That's PHNX.

Originally I left HSD alone as it's not a closed life fund, nor has it a significant discount to EV.
However, I'm not dogmatic - and it does have a good yield!

[robsy2] 09/4/2010 10:08

Phoenix? What is the EPIC code on that one ?
R2

[hieronymous1] 09/4/2010 03:23

I sold half to top slice and rebalance my portfolio - it was 40 per cent. Bought some BRIT for future yield, long term management record and to be in a slightly different sector of the industry. Put the rest into global agriculture and global water ETFs to further capitalise on man made disasters in the environment and climate, as opposed to Acts of God. The planet is doomed (or rather the human population is doomed)but we might as well make some money in the meanwhile.

[topvest] 08/4/2010 20:56

Try looking at Phoenix or Resolution - both look very good value. Phoenix is at a massive discount and is about to switch to a London primary listing. Still like this as well, but agree price has come a long way.

[robsy2] 08/4/2010 17:24

I have my concerns about this at this level. All the excitement of the Swedish expansion has given us a lot of uplift. It has performed beyond my wildest expectations but it is not the same company that I invested in.I, like others i think, are concerned about the change in the business model. The risks have increased and the cash flow has gone negative. As such I have decided to take some profits.
Jonwig mentioned RSL, not sure about that one but I like the look of Hansard. Hansard also runs open books of life assurance policies, their policies are essentially investment wrappers and the contracts they sell ensure that their profits are very well protected even if the policies they sell lapse. They have no investment risk on that side of their business, though the residual income they get from policies is partly dependent on the performance of the overall balance of funds held in clients policies. This could be a positive.
They have been at it a long time and do it well. Cash flow there is positive, dividends high, low cost business model,cash positive, zero debt all makes sense to me and they operate globally with strength in the faster growing areas like SE Asia, so there is some upside there as well.Safe and steady with less risk....

[jonwig] 07/4/2010 10:50

mct - yes, RSL is xd today. I confused myself - it's an age thing.

[mctmct] 07/4/2010 10:10

Jonwig

" if the CSN share price drops less than 10p tomorrow, who knows?"

XD is 14/4, according to your earlier post.

mct

[jonwig] 06/4/2010 13:53

Chairman - of course you checked under the bonnet - you'll be old enough to remember Jonathan Routh.

Seriously, though, the EV and the NAV are calculated on the known basis of how the policies function, and shareholders don't really need to know more than that.

Policyholders do need to know how their policies are structured, but that's a different issue. And policyholders are never given as transparent a picture.

Thanks to your comments I've changed my stance a little: not to swap CSN for RSL but to evaluate RSL as a vehicle for unlocking value via restructuring, as is their stated strategy. The current discount to both NAV and EV looks 'wrong', and an insurance against the strategy failing. Mind, if the CSN share price drops less than 10p tomorrow, who knows?

As far as long term bond yields go, they impact EEV as well as other EV calculations.

[chairman2] 06/4/2010 09:29

OK - no worries mate.

I must be odd. We bought a new car last July from the biggest
Honda dealership in the UK - and the salesman told
me I was the only customer in over a week that had asked him to
lift the bonnet so I could look at the engine!!

The Pearl process had a major effect of disavantaging policyholders
who therefore cashed in their policies earlier than had been
anticipated in the EV assumptions. This policy termination
process releases a) capital backing the policy and b) the future
liability provisions in the EV calculations which flows directly
down to profits.

EV like the IFRS standard of accounting is aimed at producing a
realistic balance sheet - the profit impacts are not relevant to
the methodology. Investors tend to focus on profits and value the
shares on that basis - not dcf balance sheet.

Beware MCEV - the key number there is the long term bond yields
which have been rising strongly in 2010. that means a high discount
rate which will lower the net present value of future liabilities
thereby boosting profits. Not in itself bad, one just needs to be
aware.

[jonwig] 06/4/2010 07:59

Chairman - thanks. I was hoping for feedback to my ramblings!

I hadn't got any further than comparing balance sheets, and you've pointed me towards other things to look at.

However, the EV (as well as the NAV under IFRS) takes full account of the factors you mention, being a DCF estimate of the accumulating return from in-force policies. So I'm not entirely convinced that "opening the tin" will add to what it says on the label.

[hieronymous1] 06/4/2010 00:18

Chairman2

I am so glad someone here can do the complicated sums. Please do not worry about talking down to us.

[chairman2] 05/4/2010 23:41

jonwig

re Resolution - if you are really thinking of switching
give Resolution a much harder look rather than worrying
about Chesnara's MCEV vs EV

The big difference is cash generation.

Increasingly RSL will be valued on the intrinsic worth
of its books of business and those books are of very
different age profile and quality and most are non-
traditional.

They were mostly written on some very different bases. FP for
example wrote its WP or participating policies not on the
norm for the industry of 90:10 split between policyholders
and shareholders but on a 100:0 split with the shareholders
taking their reward as a fixed fee. In other words the FP book
behaves much more like a bond than the normal life fund which
is often taken to be an equity-linked yield in which a rise in
the market floats shareholder reesults higher.

I apologise if you know all of that and....

(Its more complex than that since life funds are a balance of
bond/equity/property/cash investments and there is a real cost
of solvency capital the higher the equity componsent.)

When RSL took control of the Pearl books they immediately
switched investment policy to 100percent bonds on a matched
maturity basis. This allowed them to release regulatory
capital into profits - so the past profit record contains
an element of 'return of capital' as you put it. It would
be a shame if you jumped out of CSN for this reason into RSL
just at the moment when this element of the profit driver
withdraws.

Personally I wouldn't invest in RSL until I had 4 half years
of results clear of any acquisition - so I could see clearly
what the underlying perforance really is.

PS the puff about Moderna is a pr company earning its corn
- again lets see it through the cycle - we have owned it only
for one year. Remember life assurance is 'long term business'and
they really mean long in that long term.

Turning to CSN - for me a major part of the share price is
shortage of stock. People like me who bought for the yield
tend to ignore the market as a selling opportunity. We just hold
and hold - so new buyers constantly bid up the price. Does that
matter if the ammortisation of the existing book has 10 or
more years to run? Thats the figure I would like to ask for
at the AGM.

[banj] 05/4/2010 19:35

Thanks JW.

Maybe there is yet more upside from the Moderna acquisition or do you believe it's all in the price?

So far Management has appeared to have played a blinder wrt Moderna & have now adopted a growth strategy for the Company, with the clear support of Investors.

That said the RSL valuation vis-a-vis CSN look compelling!

[jonwig] 05/4/2010 11:54

A brief look at Resolution [RSL] provokes some thoughts.

RSL MCap is £2005m, share price is 83.1p and and EV was 144.6p on 31 Dec 09. That looks a bit of an anomaly set against CSN (MCap 251m, share price 234p, EV 259p).

However, RSL calculates a Market-Consistent EV [MCEV] whilst CSN adopts the European EV [EEV] standard.
MCEV is more recent, and likely to become the industry standard, as EEV gives too much discretion to individual companies. Whilst the end-results tend to be similar, the calculations are done in the opposite directions.
From what I can see, MCEV should be lower than EEV as more risk factors are taken into account. That means the anomaly would be even stronger.

Friends Provident was acquired for 65.5% of MCEV, putting CSN's valuation into perspective.

Why is RSL rated at such a significant discount to EV?
There's a transition period while Friends Provident is digested, and reports of a possible rights issue to fund future acquisitions. RSL says it will pay 4.08p from 2010 and dividend policy will be reviewed at each acquisition. The wording is unclear as to whether 4.08p is a base figure or a constant.

Is CSN on RSL's shopping list? I doubt it: RSL is unlikely to pay the current valuation of CSN against its EEV.
So why is CSN on such a fat valuation? The dividend? Well, a large part of that is return of capital - I hope holders realise that!

The AGM is in London on 13 May. If I can get down there I shall - the question of adoption of MCEV is worth pursuing.

Meanwhile a switch of part of my CSN holding into RSL is under review.

[johnroger] 01/4/2010 15:28

Times on line

Chesnara

Count Chesnara among the winners from the Icelandic financial crisis.

The owner of Countrywide Assured has done several deals since being spun off from its estate agency parent in 2004, but the purchase last year of Moderna, of Sweden, looks to have been its best. The Stockholm pensions and savings group was being sold in a hurry by Glitnir, the troubled Icelandic bank, which explains why Chesnara picked it up for only £20 million, or a 73 per cent discount to the usual life insurance yardstick of a company's worth.

Yesterday's full-year figures showed that Moderna contributed £25.1 million to last year's operating profits, which nearly doubled to £44.7 million. There were other boosts to the bottom line. A recovery in stock markets has increased the value of Chesnara's investment portfolios, and the fees it takes from running them. The rate at which customers cancel policies has also been less than expected, which is significant for its UK operations, which are essentially in run-off.

The question from here is whether Chesnara can generate cash in Sweden, which requires further investment, and find new books of business to buy. It has only £4 million of net debt, and the 2012 introduction of new solvency regulations should prompt larger companies to offload older life policies they are no longer willing to fund. Competition for such assets in Chesnara's niche is relatively slight, with the likes of Resolution and Pearl interested only in much bigger deals.

Shareholders are unlikely to see a repeat of recent strong capital gains: the shares are up by 77 per cent on the year. But as a payer of high and rising dividends - at 234¾p, Chesnara still provides a yield of 6.8 per cent - its attraction is undiminished. Hold.

[chairman2] 31/3/2010 22:39

jonwig

now plowed through the long results report
and still think my question is fundamental
company has to prove retained profits will
grow shareholder value faster than divis.

but thanks for pointing it out

I guess I am less trusting than most
some may be satisfied being tossed a
bone in the shape of a small rise in divi
- I just want two bones!

[jonwig] 31/3/2010 13:55

Chairman - read the comments re working capital requirements for Moderna.