Phoenix Share Discussion Threads

[edmundshaw] 29/9/2016 07:59

jonwig, it is in the RNS, and I quote:

Contractual Protection in Place for FCA Investigation Outcomes

Phoenix has agreed a Deed of Indemnity ("DoI") with Deutsche Bank, including £175 million indemnity protection, to cover potential negative outcomes with respect to the FCA's investigation in to Abbey Life's fair treatment of long standing customers between 2008 and 2015, and Abbey Life's annuity sales practices.

Risk sharing agreements have been put in place for redress costs and associated fees connected to both investigations whilst potential fines will be borne entirely by Deutsche Bank, subject to the £175 million aggregate indemnity protection level. The DoI will expire after six years in respect of the long-standing customer investigation and eight years in respect of the annuity sales investigation

[jonwig] 29/9/2016 07:33

Something useful, which is also in the RNS but I was too stupid to spot it:

In March, Britain’s Financial Conduct Authority launched an investigation into Abbey Life’s treatment of long-time life insurance customers which could result in compensation payments to policyholders or fines for the British insurer.

Bannister said Phoenix had taken out an indemnification to ensure that its shareholders are protected against any financial downsides of the investigation.

Maybe in the Presentation, which I haven't seen yet.

[brancho] 29/9/2016 07:16

RC, you can always sell the rights 'nil paid'

[sogoesit] 29/9/2016 06:37

Reading this on my travels. Looks good to me (but am no expert on the embedded valuation side) and my understanding, too, is that the dividend increases are "per share". This is a long term income portion of my portfolio so will hold and accumulate with the rights.
Thanks to all those giving clarity above as, otherwise, I am a bit out of touch.

[rcturner2] 28/9/2016 14:21

I have sold half of mine today, the ones I got on the Monday after Brexit.

I have too large a stake to be able to join in the rights issue.

[edmundshaw] 28/9/2016 13:56

Some sensible posts here.

I will be taking up the rights because I think it is a good deal with some potential upside beyond the headline numbers, and management has shown itself consistently capable of making value-enhancing deals, so I think the general expectation of a share price over £10 (pre-rights equivalent price) is fair. A 6.8% yield plus 20% upside and relatively low risk downside seems good to me.

[this_is_me] 28/9/2016 13:33

If you listen to the presentation it is stated that the increases in dividend are per share.

[this_is_me] 28/9/2016 13:16

Sorry speedsgh and others; too much speed (!) in making my post; now corrected.

[scburbs] 28/9/2016 13:09

Interesting that Deutsche are taking a €800m loss on disposal.

"Deutsche said on Wednesday that the sale of Abbey Life would generate an €800m pre-tax loss, because of the impairment of goodwill and intangible assets."

[scburbs] 28/9/2016 12:42

Some commentary on Alphaville using a 6% yield to calculate fair value of 1025p (pre-rights).

"A sensible deal, with upside to our view of fair value We re-iterate our Buy recommendation on the transaction. It looks like Phoenix is paying a reasonable price for a steady return asset, with upside to today’s numbers on capital and cashflows, albeit we look for more disclosure on downside risk scenarios. Simply taking a pro-forma view of new shares issued and 5% uplift to the dividend, on an unchanged target dividend yield of 6%, would imply a fair value of 1,025p."

[jonwig] 28/9/2016 12:34

RCT - agreed. And it's a good deal for DB judging by their share price reaction! I'll find a way to take up my rights since PHNX have been exceptionally clear about cashflows for the next few years. Given their record for delivering, I find them very credible.

If as you suggest, the nil-paid fall below fair value, it will probably be arbitraged away pretty quickly by selling the ords and buying the rights. Personally I don't hold enough shares to make that worthwhile.

[garycook] 28/9/2016 12:30

Just reading HL article on PHNX,and Shore Capital has upgraded PHNX to Buy from Hold,and upgraded the stock,because of the prospect of the 58.75p Dividend in 2017,and strong sustainable cash flows for years to come.

[rcturner2] 28/9/2016 12:14

In my opinion this is a good deal for shareholders, assuming a post rights dividend of 50p a share. If you subscribe to the rights you will have the same capital value as before, but the yield would be higher, implying that the shares would rise from the 730p post rights price.

The nil paid price is likely to be lower than the "true" price, because I suspect many people will not want to subscribe, owing to lack of cash in the relevant accounts. The nil paid rights will have their own market and can be bought and sold through your broker.

[speedsgh] 28/9/2016 12:11

@This_is_me. Think there is a typo error in your calcs above. Been scratching my head for a while but now dawned that it is 7-new-for-every-12-existing shares.

You have: cost of 5 rights shares = 508*5 = 3556p
Should be: cost of 7 rights shares = 508*7 = 3556p

Sorry, small point but just to help others who might also be puzzled like I was :o)

[scburbs] 28/9/2016 11:49

Thanks for all the comments. So if a fair post rights yield was 6.25-6.5% then the stabilised ex-rights price at 50p dividend should be 770-800p.

The pre-rights price corresponding to this is 920-970p.

[this_is_me] 28/9/2016 11:43

Current cost of 12 shares = 865*12 = 10830p
cost of 7 rights shares = 508*7 = 3556p
cost of 19 shares = 10830 + 3556 = 13936p
average cost of each share = 13936/19 = 733p
value of one nil paid share = 733 - 508 = 225p

I hope that helps some to understand how it is calculated. Naturally the market will take a view on whether the acquisition is a good deal; currently the first reaction is very positive. If a lot of nil paid shares are dumped on the market it will not do the share price any good.

Like many of you I have my shares in my, and my wife's, ISAs both of which are fully invested. but we have time to sort out what to do.

[garycook] 28/9/2016 11:43

Can someone clarify for me that if I own 1,950 Shares,then the 12 for 7,Rights would mean me being able to buy 1,137 shares at 5.08,but the value of the 3087 shares,would work out at around 7.33,after rights.So if I buy the 1137 rights it works out roughly the same after the reduction in the share price So I would be better off selling the Nil Paid rights surely.

[rcturner2] 28/9/2016 11:11

Let's assume that 730p is the fair value after the deal.

You are being given the option to buy shares at 508p, this is a deeply in the money option that is worth 222p, the nil paid rights will trade around this value once we have gone ex rights.

[edmundshaw] 28/9/2016 11:02

No, you've lost me there RCT: In-the-money options? Doesn't that apparent discount get offset by the future lower share price of Phoenix for current shares?

[this_is_me] 28/9/2016 10:55

Why did they issue the RNS at 8:00? That caused me to miss most of the presentation.

I agree that Deutsche Bank is in trouble so that must have helped the negotiations.

[rcturner2] 28/9/2016 10:31

It's fully underwritten.

The nil paid rights are effectively an in the money option and should be priced pretty close to fair value.

[edmundshaw] 28/9/2016 10:25

At around the current price (860p or so) taking up all the rights represents an increase of over 34% in one's holding.

Quite a significant consideration, for me at least... Do I want to become overweight here? On the other hand, what price would one get from selling the rights? Would it be a fair one? What will be the appetite of the market for £735m of new shares in fairly short order? Tricky...

[edmundshaw] 28/9/2016 09:49

Close enough to my own calculation of 730p, jonwig. The difference would come from a slightly different pre-issue price.

[rcturner2] 28/9/2016 09:46

Yes, that makes sense.

[jonwig] 28/9/2016 09:39

My reading of the dividend is, from the introduction:

"Acquisition will support a proposed increase in dividends in respect of 2017 to £197 million ..."

There are currently 248.08m shares in issue, so there will be 392.8m post-rights. This suggests dividends for 2017 of 50.15p.

XR share price ~733p, so forward yield 6.8%.