Phoenix Share Discussion Threads

[robsy2] 30/4/2010 15:53

Good work! It makes things a bit more convenient.
I see yesterday 124,892 shares were traded.
Its early days and this is a work in progress but phnx doesn't seem to get buffeted around by the markets.
I have had a closer look at the make-up of the policies that Phoenix manage and 53% in value are "with profit policy" (WPP)
If you try and drill down into the typical terms of the WPP you see how opaque these products are.
I have tried but i cannot see specific details of the charges that with profits policy holders pay. What you can see is that provision is made to give the company the right to charge the with profits fund for anything and everything inc the cost of the guarantees that the Pearl offers the WPP holders, costs associated with changes in legislation, the provision of paperclips etc. .
I know from experience that fund management charges on these policies can be between 1 and 1.5% per annum.
The aggregate investment mix of the Phoenix funds is
11% cash
56% gilts and bonds
25% equities
4% property
3% others
These charges are high in today's marketplace, and because the typical WPP has a long -term mandate, the charging structure is locked in therefore not subject to any margin squeeze. One begins to realize how astonishingly profitable managing these policies must be and how predictable the generation of profit is.
As Phoenix is busy in joining all the WPP's together the cost savings must be enormous at every level, websites , admin, paperwork , regulatory , legal , premises, etc .
On the fund management side, the consolidation of funds must provide massive cost savings.
Coming back to profitability, if we take cash holdings for example. Phoenix funds are 11% cash, more or less 6 billion GBP, charge that at 1% and you have income of 60million. I imagine Phoenix charge the WPP 1% and pay Ignis (say) 0.25%, and pocket the rest.
• It seems to me that these products are a guaranteed with profits fund for provider and Phoenix shareholder rather than the WPP holder.
This is why I am a buyer.

[jonwig] 30/4/2010 08:05

I've put a link to the relevant Euronext page into the header.

[robsy2] 29/4/2010 18:13

The real trading in this share is done in Amsterdam.
I have noted a big upsurge in shares traded there over the last week.
The last 7 days volume below has been particularly strong,
158613
79145
40409
194481
86895
160761
149556
Total 869860
previous two weeks 343 and 317000 respectively

[jonwig] 26/4/2010 11:54

Right, thanks - and banking covenants aren't disclosed as a general rule.

[robsy2] 26/4/2010 09:06

OK
So there is no future divi stopper coming from the bondholders now that coupon payments have been resumed.However, it seems like a restriction still applies because if you look at page 6 of "Phoenix Group Holdings Full Year Results Presentation WirecallWednesday 31 March 2010 [Afternoon]", they make clear reference to restrictions coming from banking convenents.


"And just to be really clear in terms of cash. On page 14, just set out a couple of further key points.
In terms of our normal annual target over the next five years of cash generation before
management actions, we are targeting £400-500 million per annum. Now on top of the regular out
flows, we also have our mandatory amortisation of debt which is £150 million starting in 2011.
There are no mandatory payments in 2010. But we have set ourselves a target of paying down
10% of the outstanding principle of our bank debt as soon as is prudent so that we can then
actually allow ourselves greater flexibility in terms of payment of dividend which at the moment are constrained by the banking agreement."
R2

[jonwig] 24/4/2010 09:00

What I've found is a bit confusing. First of all, the Prospectus (12/11/09) and R&A both have:

For so long as a deferred coupon payment has not been satisfied PGH1 may not declare, pay or distribute a dividend on any of its securities in issue ranking junior to the Notes including the ordinary shares of PGH1 or any parity securities or, except in particular circumstances, redeem, purchase or otherwise acquire any of its securities in issue ranking junior to the Notes, including its ordinary shares or any parity securities. [R&A p115]

But the Tier 1 Notes solicitation of 31/03/10 has (p1):

Under the Proposed Amendments, Phoenix Group Holdings ("Phoenix") previously known as Pearl Group) would be prevented from paying dividends to its shareholders whilst any Coupon Payment (as defined in the Consent Solicitation Memorandum) remained deferred (with the exception of aggregate dividend payments to its shareholders of up to a maximum of £60,000,000 in 2010 but after 22 April 2010).

So it looks (not very clearly) as though payment of deferred coupons on the Tier 1 notes will free up dividend restrictions.
(A €0.50 dividend costs €66m, or about £57m.)

I haven't found any reference to the bank covenants you mentioned, but haven't finished looking.

A coupon on the Notes costs £33m, small beer compared with the £500m plus annual cash flows projected.

[jonwig] 23/4/2010 18:33

Thanks Robsy.

I'll look further over the weekend and comment if I feel able! I'm comfortable with a 50c divi whilst 'deferred' payments roll up on PHNX's balance sheet for future payout.

As for CSN, it would have been shrewd for me to sell out completely, given that the ex-div fall was ultimately far more than 10p but I wasn't entirely convinced by my own arguments!

[robsy2] 23/4/2010 16:59

Well Yes and No ! I think there was a clause inside the Notes convenent that said that in the event of non-payment of Note holders coupons then no other distributions to capital were possible . I think this dividend stopper was bi-passed when they listed under a new holding company.
I think the dividend stopper now is to do with a convenent restriction imposed by the banks when they restructured the debt. My understanding is that if they pay down 10% of the outstanding debts from 2011 onwards then they can up the divi.
Sorry I can't be more specific, its a bit frustrating because I know I have seen this info somewhere but these 200page annual accounts are a bit dense for me and I can't seem to find the appropriate slide now.

If you want a neat, abridged version of events, then have a look at the website and that gives you the highlights. It makes for interesting reading. here is the link



ref 31 Mar 2010 Audited Results conference call - 2.00pm (UK time)

I have sold out of CSN and stuck my lot into PHNX. Fingers crossed.
R2

[jonwig] 22/4/2010 11:39

Bond proposals passed overwhelmingly:



Pardon my laziness, but:

... the notice made on 23 March 2010 to defer the 2010 coupon on the Tier 1 Notes has been revoked and accordingly the 2010 coupon will be paid on 26 April 2010. The 2009 coupon, that was deferred last year, will be satisfied by the end of 2010.

Does this mean the €0.50 annual dividend cap will no longer hold from 2011?

[jonwig] 17/4/2010 08:32

Annual Reports of both PHNX and RSL are on their websites.

[robsy2] 14/4/2010 16:29

Not much trading in London.The main market is in euro quoted shares.I suppose the € shares rank equally now and post full LSE listing?
You mention the noteholders issue. I see that they have written approval from the banks and others that represent 60% + of the holders, so that looks a done deal, since they only need 75% approval of votes " cast" so that looks good.
Staying on the notes, even with revised terms,at the current quote they look great value but are hardly ever traded so that doesn't look viable.
Full steam ahead for the full listing which is good news. The divi is fine anyway and as you say there is a lot more to come as they release value from the assets.
I can't see much wrong with this.The low rating I suppose reflects the uncertainty as they go through the restructuring but they are nearly there so I am taking a position in the belief that they can release the value in the books of business they have and that this will sooner or later re-rate.
R2

[jonwig] 13/4/2010 19:31

Agreed - the thin market in the shares might be due to the London listing being secondary leading instis to keep clear for the time being, though that should be sorted within a couple of months.

There are, of course, still uncertainties which we might be guilty of underestimating. A key date is 22 April. If the noteholders agree, I would expect dividends of over €0.50 to be paid within a couple of years:



The divi is still a yield of 6.3% at the current price.

[robsy2] 13/4/2010 19:16

yes cash flow is predicted to be strong and it needs to be , they have a lot of debt to clear by 2014. 2009 was a great year for cash generation but they had a lot of one-off cash costs as well. Excluding one-off costs they had free cash flow of £450m. That is the target for each of the next 5 years. If they can do that there will be enough cash to drive down debt. They are committed to paying off/ rolling over? 1.7bn of bank debt by 2016, debt servicing costs will be around 100m a year so they have some work to do.Anything left for dividends? If we plugged in a 10% divi, say 70p a share that would cost 140m a year( fully diluted) say 900m over the next 5 or 6 years. Cost savings could be big and cash generative, as they consolidate operationally Refinancing with banks would not be a big problem I would imagine because of the quality of the assets and the relatively predictable nature of the income streams, but as you say there are dual claims on cash flow and those pesky noteholders need to placated...... hmmh
R2

[chairman2] 13/4/2010 16:50

share price action suggests either
the same liquidity problem as with CSN or...
market not yet made up its mind - most
probably not confortable with the dual claims
on cash flow.

[robsy2] 13/4/2010 15:46

Gentlemen
I have had a closer look here and the shares look good value. The MCEV looks really good.I make the potential MCEV 1827+274 (warrants)+623 (MCEV not included , this is the value of the management company and Ignis) divided by 198m shares(fully diluted ) = £16.71 a share.
The cash flow looks great, 2.17billion over the next 5 years and the PVPF as at 31.12.09 is £2.864 billion.
Dividends restricted to 50cents a year, still not bad.
Operationally we can expected a lot of cost savings. The run-off function is largely outsourced at a profit. The pension fund liability is low and capped. The value should build up quickly here. It looks a lot better value than CSN.
Am I missing something though?
Your thoughts are welcome.
R2

[robsy2] 12/4/2010 15:44

Ok thanks
I've had a peep at Resolution and am already a little put-off.It looks like a big project with risky outcomes for lots of reasons so I'm focussing here now. The thing is I like Zombie Funds.
Will let you know what I find
R2

[jonwig] 12/4/2010 15:31

Sorry, I never noticed the old thread Robsy. At least it didn't have many posts, so not much info to store up.

My understanding of PHNX is limited to the recent results and the introduction prospectus.
As yet I can't respond to your queries, except that I'm targeting a certain level of dividend return from my portfolio which appears to be more certain from PHNX than from RSL.
Until the restructuring is complete, they can't pay more than €0.50 pa divi, and the dilution effect of buying out warrant holders is uncertain. I've seen a Black-Scholes valuation of the warrants (results pdf p87) which suggests they aren't traded.

[robsy2] 12/4/2010 15:12

Chaps so OK here we are.
If you haven't already seen it there is another thread called prlg which has some info but I think we should hang out here so well done jonwig for setting it up. I'm having a look at this and would appreciate it if you share your thoughts. This looks interesting and undervalued but Why?
In the interests of non-duplication of work Any thoughts on the following would be useful:
Warrants: are they tradable and if so, interesting, do you think?
Any ideas of what the restructuring involves? and the repurcussions?
Wondering how this stacks up against Resolution? any thoughts?

[jonwig] 12/4/2010 09:52

The 800 buy was mine, funded by a sale of some CSN.

I'm still surprised that the bondholders should be willing to take a haircut when the old Pearl said it was quite able to pay the full coupon and ordinary shareholders should benefit hugely over the coming years.

[topvest] 11/4/2010 11:13

Yes, well spotted. This is massively undervalued if they pull of the final restructuring and a primary listing over the next couple of months without dilution. Still suffering from over-leveraged reputation, but the debt for equity swap has already gone through.

[jonwig] 11/4/2010 08:48

Topvest - the numbers I put into the header were from the prospectus dated last November. Since the numbers you've directed me to are more recent, I'll use those.
Thanks.

Agreed exercise of warrants will inject cash into the business, and I calculate addition to be £274m at current exchange rates, so adjusted MCEV would be £2100m with 197m shares, giving 1070p/sh.

(There's another £623m of value outside the life funds - see p. 8.)

[topvest] 10/4/2010 20:25

jonwig - the warrants have various exercise rights, meaning they are not as dilutive as you mention above. Take a look at p.65 of the results presentation.

[jonwig] 10/4/2010 15:35

Hi, topvest. I haven't looked into the Phoenix/Resolution history yet. I'm quite exercised though by the feeling that my CSN shares are looking pretty fully-valued.

[topvest] 10/4/2010 15:05

Indeed they are difficult to fully get to grips with. I've bought some shares though, as this should get re-rated in the summer when they get a primary london listing sorted. the Euro 50c / share dividend and large discount are also attrative, along with the high profile Chairman recently brought in. I wonder whether a merger with Resolution might be on the cards? Unlikely at the moment and I think there was a threat of legal action previously as Resolution sold out at the top. Stranger things have happened though - the logic of a merger would create a life assurance beast!

[jonwig] 10/4/2010 11:56

The results to 31 Dec 09 are pretty impenetrable, as a major reconstruction of the balance sheet is in progress, which we're told will be completed at the H1 stage - 30 June.

Whilst the MCEV is stated as £1827m, this really needs to be related to potentially 224m shares in issue - ie. 816p/sh.

The company reckons it can increase MCEV by over £100m pa to 2014.

The projected dividend is €0.50 per share until the balance sheet has been cleaned up and bondholders have been satisfied, progressive thereafter.