Phoenix Share Discussion Threads

[masurenguy] 17/5/2014 10:18

Found this IC article on another thread.

Buy Phoenix's soaring yield
Phoenix Group Holdings (PHNX)

High RISK

Bull points
•Fat dividend yield
•Throwing off cash
•Ready for acquisitions
•Shares cheaply rated for the sector

Bear points
•FCA probe has hit sentiment
•Some exposure to annuity reform

Shares in the life assurance sector's closed-life companies tumbled heavily late last month after news emerged that the Financial Conduct Authority (FCA) was planning to probe that market. Phoenix (PHNX) wasn't spared any of that slide in sentiment the closed-life specialist's shares tumbled 12% on the back of the news. But clarification from the FCA suggests that its planned investigation is unlikely to represent quite the threat that investors had originally feared, leaving the share price de-rating looking overdone. Moreover, impressive cash generation supports an impressive dividend yield.

Specifically, Phoenix's shares slipped after news reports suggesting that the FCA planned a review of life and pensions policies sold between the 1970s and 2000, covering some 30m customers - driving fears that another large-scale mis-selling type probe might be under way. But the FCA's clarification statement some hours later suggested a more benign agenda - focused on "fair treatment" of long-standing customers and which specifically excluded "a review of sales practices for these legacy customers". The probe - which won't even begin for another three months - will focus on service levels provided to clients with policies held in closed books. Analysts think cross subsidisation, in particular, is likely to face scrutiny - whereby closed books might be disproportionately charged to support new business generation.

But such a regulatory agenda is unlikely to represent much threat to Phoenix. To begin with, it writes very little new business - it only sells some annuities to existing maturing customers - so fears that it may be unfairly charging closed book customers to support news business isn't really relevant. Moreover, analysts at broker Canaccord Genuity are confident that Phoenix's existing administration charges "will not be deemed 'rip-off' charges" by the FCA. True, the small amount of new annuity business that Phoenix does currently write could be affected by the Budget day decision to axe compulsory annuity purchases. But here, too, the impact is likely to be modest - analysts at Deutcshe Bank believe this activity generates just 1% of its profit.

PHOENIX (PHNX)
ORD PRICE: 654.5p MARKET VALUE: £1.47bn
TOUCH: 653.5-654.5p 12-MONTH HIGH: 810p LOW: 562p
FORWARD DIVIDEND YIELD: 9.1% FORWARD PE RATIO: 14
NET ASSET VALUE: 849p EMBEDDED VALUE: 1,058p

Year to 31 Dec Gross premiums (£bn) Operating profit (£m) Earnings per share (p)* Dividend per share (p)
2011 1.47 387 -76.2 42.0
2012 1.61 429 227 47.7
2013 1.33 439 68.2 53.4
2014* na 282 47.0 56.1
2015* 258 48.0 59.5
% change - -9 +2 +6
*JPMorgan Cazenove estimates, adjusted EPS

Normal market size: 3,000
Matched bargain trading
Beta: 0.90

Of more importance is Phoenix's impressive cash generation. That reflects the fact that Phoenix doesn't need to allocate much capital to support new business, so capital requirements for operating its closed book decline as policies mature. This in turn boosts cash flow and, in 2013, it generated £817m in cash, significantly beating its £650/£750m target. It now expects cumulative cash flow from operations for 2014-19 to reach £2.8bn - great news for the dividend. The shares already boast a prospective yield of 8.6% in 2014 rising to over 9% in 2015, the best yield in the UK life assurance sector.

Of course, without new acquisitions, the business will eventually run down to nothing - so some of that cash must be used to buy up additional closed books. Acquisition prospects, however, haven't looked so good lately - not only did talks in November regarding Swiss Re's closed-life business come to nothing, but the group's debt burden has also looked like a constraint. That situation, however, improved significantly last month after agreeing to sell its Ignis asset management arm to Standard Life (SL.) for £390m. Those proceeds will bring the gearing ratio to below 40% - a level that management feels sufficiently comfortable with to push ahead with further deals. Moreover, with around £200bn of assets within closed-life funds in the UK - mainly in large UK life players, foreign insurers and UK banks - management believes targets won't be hard to find.

SHARE TIP UPDATE
Phoenix's shares now trade at a chunky discount to reported embedded value (net asset value, plus the profit stream from life policies), yet those of most life assurers trade at modest premiums. With the FCA's probe unlikely to represent the threat that was originally feared, and with acquisition-driven growth back on the agenda, that's unsustainably cheap. Indeed, the yield alone leaves Phoenix's shares worth snapping up. Buy

[envirovision] 16/5/2014 12:45

I took some as well ;)

[aleman] 16/5/2014 12:28

Bloody ridiculous this. FTSE250 index hit its 200-day average late yesterday and that has sparked massive index shorting. Arbitraging means others are selling the shares and buying the index so PHNX has been clobbered for the index falling through its moving average. I've just topped up on an 8.5% yield. Fundamentals will win through once the program trades ease off.

[philo124] 03/5/2014 13:00

Canaccord 800p target.

[jonwig] 02/5/2014 16:11

Yes, it's nominees, who could be ... anybody!
Some of the individual beneficials will have increased by 1 or 2%, which may trigger a separate announcement.

The holdings structure here (eg. Osmond, beneficial) is so complex I've been unable to update the header satisfactorily!

[skinny] 02/5/2014 15:44

I think the breakdown is given in section 13 in the link post 948.

[scburbs] 02/5/2014 15:39

Market cap $21.5bn, not sure if investing for themselves or their clients.

"Ameriprise Financial is a leading diversified financial services firm with more than $700 billion in assets under management and administration. Through our extensive wealth management and asset management capabilities, we advise, manage and protect the assets and income of more than 2 million individual, small business and institutional clients. We have been helping people feel confident about their financial futures since 1894."

hxxp://ir.ameriprise.com/corporateprofile.aspx?iid=113901

[scottishfield] 01/5/2014 15:34

yes good statement I thought too, might increase my holding

[drdre] 01/5/2014 10:44

Many thanks JW

[jonwig] 01/5/2014 08:48

DrDre:

Ignis generated net inflows from third parties (excluding liquidity funds and Guardian assets) of £1.1 billion in the 3 months to 31 March 2014 (3 months to 31 March 2013: £0.2 billion), driven by strong Absolute Return Government Bond Fund sales. Net liquidity outflows totalled £0.2 billion during the quarter (3 months to 31 March 2013: £0.7 billion outflows).

I've read that this bond fund has recently been revamped. £1bn would seem about right for big institutional interest ...

[rimmy2000] 01/5/2014 08:36

This is a reasurring set of interims. Happy to be holding.

[drdre] 01/5/2014 08:32

Good RNS, everything on target :)

£235m of the top end £550m target for cash generation already met in Q1, which is ahead of schedule I would presume.

Can anyone explain the difference in net third party asset inflows (excluding liquidity funds and Guardian assets) generated byIgnis in the 3 months to 31 March 2014 (£1.1bn) (3 months to 31 March 2013: £0.2 billion). - why the huge difference in these figures? Apologies if it is explained in the RNS.

[scburbs] 01/5/2014 08:10

Steady as she goes, everything on track. Exactly what you want from a 7.7% yielding investment (with capital upside in the MCEV) in a low yield world.

Bold of them to make the best practice statement, must be very confident on that:

"We look forward to engaging with the FCA review on the fair treatment of long-standing customers in life insurance and believe our initiatives demonstrate best practice in this area."

[skinny] 01/5/2014 07:04

Phoenix Group Holdings announces cash generation of £235 million in the three months to 31 March 2014

Financial and operational highlights in the three months to 31 March 2014

· £235 million of cash generation1 in the 3 months to 31 March 2014 (3 months to 31 March 2013: £410
million). Total Holding Company cash2 of £1,197 million at 31 March 2014 (FY13: £995 million).

· Estimated IGD3 surplus of £1.2 billion at 31 March 2014 (FY13: £1.2 billion). The impact of the Ignis
divestment and subsequent debt repayment is expected to be broadly neutral on the IGD surplus.

· Estimated PLHL ICA3 surplus of £1.3 billion at 31 March 2014 (FY13: £1.2 billion). The impact of the Ignis
divestment and subsequent debt repayment will reduce the PLHL ICA surplus by £0.1 billion.

· Estimated Phoenix Life free surplus, which represents excess capital over the minimum requirements
and the life companies' capital policies, of £363 million at 31 March 2014 following distribution of cash
to Holding Companies (FY13: £529 million).

· £1.1 billion of net third party asset inflows (excluding liquidity funds and Guardian assets) generated by
Ignis in the 3 months to 31 March 2014 (3 months to 31 March 2013: £0.2 billion). Group Assets under
Management of £69.3 billion at 31 March 2014 (FY13: £68.6 billion).

· Cash generation includes the completed divestment of BA(GI) Limited, the Group's residual general
insurance business, to National Indemnity Company for £21 million on 18 March 2014.

· Announced the divestment of Ignis Asset Management to Standard Life Investments for £390 million on
26 March 2014. Completion is anticipated by the end of the second quarter subject to receipt of
regulatory approvals.

· On track to meet all financial targets, comprising
o operating companies' cash generation of £500 - £550 million in 2014 (excluding Ignis
divestment proceeds), and £2.8 billion between 2014 and 2019 (including Ignis divestment
proceeds);
o cumulative incremental MCEV enhancements of £300 million in the period from 2014 - 2016;
and
o gearing reduced to 40% by end of 2016, which is expected to be achieved following the
completion of the divestment of Ignis, based on the pro forma position as at 31 December
2013.

[scburbs] 29/4/2014 14:51

IMS due on Thursday. I am expecting a strong start to the year with all targets on track.

[hvs] 16/4/2014 18:09

lol, !!!!

look it up.

HEGDIES will get BURNT.

[robsy2] 16/4/2014 17:49

emollience?
R2

[scottishfield] 14/4/2014 13:03

up on a day like today is v good imo.

[hvs] 13/4/2014 18:56

Yes,

Very interesting and genuine man. PHNX is in good hands.

And its a very SOLID company.

[jonwig] 12/4/2014 11:55

Tomorrow's Sunday Telegraph (business section) will carry an interview with Clive Bannister.

[blueliner] 12/4/2014 09:57

I was away for 'FCA day', but managed to top up with a few more yesterday having sorted the new tax years ISA out.

[skinny] 11/4/2014 11:28

I finally bought in here this morning, having traded it previously on 'FCA' day.