Phoenix Share Discussion Threads

[jonwig] 30/1/2013 10:59

Danger - whilst I agree with you, I am a bit concerned at the increased margin over LIBOR of 475 bps.

That's manageable at present (and could even form the basis for share buybacks if consolidation plans fail to happen), but it just might come back to bite them.

GFC = ... ? (Global Financial Crisis, maybe?)

[dangersimpson2] 30/1/2013 10:22

I think the problem PHNX had is that the world changed - prior to the GFC then companies were valued for their good capital structure and not having 30-50% gearing was considered bad since you were raising more expensive equity capital than necessary and paying more tax than necessary. Then came the GFC and debt made companies significantly riskier and companies, shareholders and banks simultaneously debt averse. In every results announcement you see companies describe how they plan to pay down that debt and investors valuing success in that highly.

So the problem that PHNX ended up with is that they are a consolidator of closed life funds and they need that debt finance to fund the consolidation in a world where everybody wants debt repaid asap. They generate their return by combining the management systems of the policies, netting off the risks and extracting the excess capital, and getting paid to manage the run-off of the funds and to do so effectively they need to finance the consolidations.

Without the debt re-terming they couldn't fund any further consolidations. So although they probably could have squeezed their life companies to generate the cash to pay down the debt (or sold Ignis) then they don't really want to nor is it in shareholders best interest for them to do so. So overall the rate of the re-termed debt or the level of gearing don't really concern me because I expect them to generate higher returns on their cashflow than they get by paying down the debt further.

[scburbs] 30/1/2013 08:36

Typo56, Yes, it is very rare to see a share price shoot upwards after a discounted placing and open offer - anyone without the funds to take up the open offer should sell something to fund it (PHNX itself if really necessary) as it is free money (based on the current share price).

This shows how much of a discount the market was placing on PHNX for the refinancing risk. That discount is starting to unwind, but still at c.40% discount to MCEV and a very strong prospective dividend yield, so plenty more to go for.

[jonwig] 30/1/2013 08:36

Typo56 - that's right ... with an open offer, use it or lose it.

Of course, the shareholder vote is academic, with Hugh Osmond vehicles owning a good third.

I'm a bit concerned (as with Scburbs, post #505) at the rebased rate, but also that the company has signalled a higher gearing rate over the medium term than I'm really comfortable with.
But in these markets, nobody will care, for a good while!

[typo56] 30/1/2013 08:26

It's actually an open offer rather than a rights issue. My understanding is if you let them lapse you won't get any payment, unlike a rights issue. At the current price it would seem a bit bonkers not to buy more shares at 500p!

[stemis] 30/1/2013 08:22

Seems a good deal for shareholders. If they take up their rights (which I will) there is minimal dilution. Not sure though if they are signalling a rebasing of the dividend from 47.7p or 53.4p.

[scburbs] 30/1/2013 08:17

Here are the new dividend restrictions. Providing for a potential increase of c8% p.a.

"The dividend conditions have been amended to provide a dividend capacity of £125 million for dividends declared in respect of 2013, with capacity to increase by £10 million p.a. thereafter."

Based on 225m shares that is 55.6p per share (32% increase - i.e. the 27% announced increase in the final dividend can also be applied to next years interim dividend).

[typo56] 30/1/2013 08:07

Not bad, considering they are trading ex-offer this morning - equivalent to closing at about 576p last night I think.

[scburbs] 30/1/2013 07:59

Looks good to me. Not too much dilution with 2/3rd of equity as open offer, although slightly higher equity raise than I would have hoped so MCEV/share heavily falls to £10.34. Howver, the lower MCEV should be balanced by the derisking thereby significantly closing the discount to MCEV.

New debt is expensive (LIBOR+475bp), but not too bad with LIBOR where it is. The winner is the dividend increase and removal of the restrictions preventing it increasing (probably still some restrictions). Shareholders will strongly support IMV.

[philo124] 30/1/2013 07:56

Quite a jump yesterday- lol. Hold these in my trading a/c and SIPP, will
take up rights.

[jonwig] 30/1/2013 07:51

Open Offer (0.194745:1) at 500p, 25% increase in final dividend, partial debt restructuring:



All good stuff, and company metrics in line with targets.

But will shareholders vote in favour? ... :-)

[zcaprd7] 24/1/2013 11:09

Bit of natural resistance here... I think it will push through...

[scburbs] 24/1/2013 09:02

The company calculates the present value of the Ignis cashflows at £400m. My understanding is that this value is not in the MCEV number as they add this to the MCEV in order to produce the gearing statistic (page 7).

[zcaprd7] 24/1/2013 08:54

Sounds promising. They can throw that into the discussion with the banks of needed...

[jonwig] 24/1/2013 08:11

Citywire has followed up the Ignis story and has an interview with the Ignis CEO:



Ambitious stuff!

[jonwig] 23/1/2013 16:33

Danger - thanks, and interesting link there!

I see that, going back a full two years, I reckoned Ignis to have a £800m tag based on FUM.
Not that it helped, but assets are higher now, bonds and equities.

Your remark linking with debt talks might be right!

[dangersimpson2] 23/1/2013 16:14

Some former discussion on Ignis value here:



A rejected £400m bid does show that Ignis may be worth up to half of Phoenix current £1b market cap. Although the value of the internal FUM will be in the MCEV.

It also means the management are probably happy with how the debt re-term negotiations because they could have strengthened their hand significantly with an extra £400m in the bank if they needed it.

[philo124] 11/1/2013 07:58

Canaccord now 610p as of this a.m. .

[jonwig] 09/1/2013 08:59

Current (last 3 months) brokers with target prices:

Investec ... H ... 496p
Barclays ... UW... 555p
Canaccord .. B ... 600p
Deutsche ... H ... 620p
JPMorgan ... OW...1023p
UBS ........ H ... 460p

[jonwig] 08/1/2013 12:25

Scburbs, I'm thinking of PIBS, which I've held in the past.

This summarises it, basically for Basel III: In the new regime, anything which pays a fixed coupon will not be considered core tier 1 capital



That needn't translate into Solvency II criteria, of course, but I go along with what you posted a month or so ago, that the debt restructuring needs to move up a gear.

[scburbs] 08/1/2013 09:41

Jonwig,

Any idea what characteristics it might be missing?

There is no requirement to actually repay these instruments (coupon or principal), but perhaps they are lacking the ability to directly enforce losses onto the holder?

If they can persuade the holders to add the necessary clauses (if any) without altering the interest rate too much then that would be a great result.

[jonwig] 08/1/2013 08:54

Notes also meet the conditions to be included in Tier 1 capital...

It's that bit which might change under Solvency II I think. Basel III is causing banks to address their sub debt.

[scburbs] 08/1/2013 08:41

It would be a shame if the Solvency II rules were to push PHNX to get rid of these things given they don't have to repay them until they choose to! The interest rate at 6.5864% or 2.78% over LIBOR from 2016 looks pretty good for an indefinite unsecured loan.

"The Notes have no fixed maturity date and coupon payments may be deferred at the option of PGH1; accordingly the Notes meet the definition of equity for financial reporting purposes. Under the rules of the FSA, the Notes also meet the conditions to be included in Tier 1 capital in the calculation of the Group's Capital Resources. As the Notes are not held by the Company, these are disclosed as a non-controlling interest in the consolidated financial statements.

The Notes may be redeemed at par at the option of PGH1 on the first reset date of 25 April 2016 or on any coupon payment date thereafter. Redemption is subject to the agreement of the FSA. In certain circumstances PGH1 has
the right to substitute the Notes or to redeem the Notes before the first reset date. Coupons are payable annually in arrears on 25 April, at the rate of 6.5864% per annum, until the first reset date. Thereafter coupons are payable semi-annually at 2.73% per annum over the then prevailing offered rate for six
month sterling deposits."

[scburbs] 08/1/2013 08:38

That company paid £459m of dividends in 2011 so it is quite important that the Group FD is on the board.

I think this is just the new FD taking his place on the board. According to the 2011 accounts P Miles was on the board (not sure if he still is).

However, it is possible that a forthcoming restructure has drawn his attention to the fact he is not on the board!

"Phoenix Group Holdings announces that Jim McConville has been appointed Group Finance Director and will commence executive duties on 6 June 2012.

...

Paul Miles, previously Acting Group Finance Director, will remain with the Group."