Phoenix Share Discussion Threads

[scburbs] 23/3/2012 08:13

Looks like they have had to scramble to exceed the midpoint of the target range.

Cashflow set to fall sharply next year, particularly in H1 as the cupboard is currently bare (Phoenix Life surplus went from £750m to £93m as they took cash out to meet targets and profit was offset by negative investment variances. The surplus is now back to c.£250m as of 16 March).

Cash projection of £3.2m for 2011-2016 still seems on track, but the £810m in 2011 implies a run rate of just under £0.5m p.a.

Good to see that MCEV held over the year (slightly down on H1), a good performance given the underlying market.

[jonwig] 16/3/2012 12:52

Low bond yields appear to be one of the reasons why life funds (including zombie funds) are having a tough time - basically maturing bonds have to be switched to lower-yielding ones.

Bond yields appear to have bottomed, which may be the reason why PHNX has shown some firmness recently.
This might be relevant:



And:


The secular bear market in bonds has begun
The jump in US Treasury yields this week marks a secular turning point for bond markets. We believe a long-term bear market has commenced. The source of the sell-off is clear-an improved and more durable global economic recovery, particularly in the US. Markets are beginning to challenge the Fed's commitment through 2014 to its current accommodative policy stance. And based on the evidence and our forecasts, the Fed will lose the challenge.

Not a straight line
In our view, the sell-off will be sporadic, not a straight line. Fed policy won't change soon and a steep yield curve makes shorting Treasuries expensive. But barring an unexpected slowdown in the US or abroad, or an oil supply shock, we believe the trend toward higher yields in the months, quarters and years ahead is established.

What does this mean for asset allocation?
The obvious investment implication is to reduce duration exposure in fixed income allocations, including to investment-grade corporate credit. Some might think rising bond yields are a risk for global equities. They are probably wrong. Provided that higher yields reflect improved growth expectations and reduced cyclical risk, global equity markets will remain underpinned. Equities should also benefit from an eventual asset allocation shift (which has not yet occurred) from bonds to stocks. Only in the event that rising yields represent either inflation or sovereign credit jitters will they tend to undermine the case for risk assets.

Revised allocations
We reduce our duration exposure by cutting investment-grade credit to underweight and emerging market hard currency bond allocations to neutral. In light of decreased cyclical risk, we also trim our overweight allocation to implied equity volatility. We re-allocate to shorter duration high-yield corporate and emerging market local currency bonds. We retain overweight allocations to global equities, corporate credit, real estate and selected commodities. Our underweights are concentrated in nominal and inflation-linked government bonds and cash.

[zcaprd7] 15/3/2012 16:30

Interesting new shareholder:

[scburbs] 14/3/2012 12:21

RSL having a spike today. I am holding both.

[zcaprd7] 13/3/2012 18:04

hmm interesting spike?

[hugepants] 29/2/2012 16:03

Quality post shrubs.

[jonwig] 22/2/2012 16:15

Thanks for that, scb - though I haven't checked your numbers, the analysis chimes!

The only negative comment I've read about PHNX (mostly FT) is on the difficulties of refinancing the debt. Something the company has always been relaxed about.

29 March last year had the FY results.

(BTW, why still these silly RNSs when they're no longer in play?)

[scburbs] 22/2/2012 15:40

I have had a quick look at the debt repaying capacity of Phoenix. In 2010 the £734m cash flow generated surplus cash of £284m after debt repayments of £122m and one-off costs of £79m. This gives a debt repaying capacity £406m-£485m (top end being if one off costs don't repeat in another guise).

The 2011 performance seems to indicate an improvement in cashflow so £400-500m seems about right.

The cashflow targets for 2010-2014 is £3bn and 2011-2016 is £3.2bn. Closing cash balances at 30 June 2011 were £720m.

The £2.5bn of debt is scheduled for repayment (the actual debt may be £0.2-0.6bn higher than this as the presentation doesn't disclose all the facilities, although the other facilities not shown below look mostly long term):

2011 - £150m
2012 - £150m
2013 - £150m if all extensions exercised
2014 - £720m
2015 - £517.5m
2016 - £767.5m
2017-2023 - nil
2024 - £77m

If you assume that Phoenix achieves debt repaying capacity of £400m p.a. in 2011-2013 and £300m p.a. in 2014-2016 then the cash balance will move as follows (if the dividend cost stays constant and debt is not repaid in advance).

2011 - £845m (using £200m half year surplus cash and £75m debt repayments added to £720m cash).
2012 - £1,095m
2013 - £1,345m
2014 - £925m
2015 - £707.5m
2016 - £240m

On this analysis the group actually generates enough cash to repay all of the debt without refinancing just from the ongoing cashflows! This is pretty impressive! Even if you assume that in 2016 the group will need around £500m of cash as part of their regulatory capital buffers then the refinancing requirement is still relatively limited. In reality I expect the group will refinance as appropriate and then move to a progressive dividend policy or commence share buybacks in order to pay back the debt over a much longer period, but this shows what can be achieved when you have such strong cashflows.

As it is a closed life group the cashflow profile will start to tail off when all the efficiencies have been taken, but the NPV cashflow profile still has 60% of the cashflow generation in year 6 onwards.

[scburbs] 20/2/2012 14:06

This looks undervalued relative to current sentiment (as well as remaining undervalued on an absolute basis). RSL is also looking relatively cheap given its lower gearing levels. I have added some more PHNX and taken a position in RSL as well.

At current valuations both represent solid 7-8% yield plays with decent capital appreciation potential thrown in.

[stemis] 14/2/2012 16:02

Market has taken the news well; off only 3.4% from its recent peak. I wouldn't have been too happy to take less than 700p

[jonwig] 10/2/2012 14:37

Resolution maybe. Walked away I read, but could return.

[zcaprd7] 10/2/2012 14:19

Hmm, bit annoying, were there other suitors?

[topvest] 10/2/2012 09:48

This business is not in distress - there is no reason to sell to CVC at all when the book value is twice the share price!

[scburbs] 10/2/2012 09:02

Agreed. CVC didn't have any value to add to the business, they were here to take the value that belongs to shareholders!

[fenners66] 10/2/2012 08:35

Clearly the Directors were adamant that any offer did not reflect the company's value.
Whilst that opinion is often misguided it may well be correct this time. Any bid therefoer would have had to have been substantial maybe CVC just did not have the firepower.
Its up to the directors to extract that value now and deliver huge share price gains over the next few years.

[hyden] 10/2/2012 07:47

But I reckon the share price will nevertheless likely crash on open. :-(

Edit: Happy to be proved wrong, so far. Maybe the leak took the froth off.

Edit: Spoke too soon. Rats. :-(

[topvest] 10/2/2012 07:43

Great news in my opinion. Wasn't happy about this bid. Phoenix is, in my opinion, worth more by being patient and retaining its independence. It needs to continue to generate very strong cash flows and reducing debt materially over the next year or two. In the meantime, we get rewarded by a good dividend and big upside in the share price.

[jonwig] 10/2/2012 07:04

This didn't leak out ...

Phoenix Group Holdings ("Phoenix" or the "Company"), the UK's largest specialist closed life fund consolidator, announces that it has mutually agreed to terminate discussions with CVC Capital Partners ("CVC") regarding a possible offer by CVC for Phoenix.

Phoenix can confirm that it is not in discussions with any other party regarding a potential offer for the Company. Accordingly, Phoenix should no longer be considered to be in an offer period.

What happens now to the share price?
I've absolutely no idea, but I doubt that it will go up much!

[jonwig] 01/2/2012 10:46

fenners - not a murmur, but we've all seen it, of course. Comment would be mere speculation - on my part, anyway.

I did think of analysing all the Form 8.5 (EPT/RI) and Form 8 (DD), etc. notices, but I'll leave that to you.

[fenners66] 01/2/2012 10:09

Great price action and not a murmur on here.
Closer to a real offer?

[stemis] 25/1/2012 09:47

Wasn't the rumour that Resolution offered £1.2bn, which is about 688p a share. Presumably they wouldn't take less than that?

[hyden] 24/1/2012 20:08

Scurbs,

I stand corrected. Many thanks for the info.

This is good news as far as I am concerned as I was led to believe the maturity profile was much tighter. Certainly no need for the board to accept such a low ball offer then. :-)

[zcaprd7] 24/1/2012 19:34

Certainly looks good from a technical point of view, breaking out...

[jonwig] 24/1/2012 18:34

The debt refinancing has often been cited (eg. in the FT) as a potential problem which might mean capitulation at a low takeout price. On the other hand, company presentations and webcasts have always been relaxed about the ongoing debt talks.

For myself, I can't fathom why they would be in such a rush to settle at the low prices mentioned. Hugh Osmond is a big shareholder - I'd be surprised if he accepted 700p.

[scburbs] 24/1/2012 18:20

Hyden,

The interest steps up on 2 September 2013 on £2bn of debt by between 0.5% (£1bn) and 1.75% (£0.5bn) so this might (or might not) incentivise the company to refinance, but the loans are not due then.

£1bn repayable in November 2014, £0.5bn November 2015 and £0.5bn November 2016 + c.£400m of bank debt also in 2016.

This means they have rather more time than you imply and with the strong cashflow the actual debt levels should be much lower by November 2014 make a refinancing hopefully easier.

Appendix IX has a good summary.