Performance Review of Two Dividend Yielding FTSE Stocks - Prudential & Phoenix Group Holdings

Summary

  • Prudential's US business received equity investing from Athene Holding Ltd in July 2020.
  • Prudential paid the second interim dividend of 20.84 pence per share for FY2019.
  • Phoenix Group declared a dividend of 23.4 pence per share for H1 FY2020.
  • Phoenix Group had assets under administration of £248 billion as on 30 June 2020.

Both PRU & PHNX were up by close to 1.19 percent and 0.67 percent, respectively from the last closing price. Based on 1- year performance PRU was down by close to 4.38 percent, whereas PHNX was up by close to 4.64 percent (as on 10 August 2020 before the market close at 9:10 AM GMT+1). PRU and PHNX had an annual dividend yield of 3.10 percent and 6.50 percent, respectively. Let's walk through the recent updates of the two companies.

Prudential PLC (LON: PRU) - Issued notes of USD 1.0 billion in April 2020

Prudential PLC is a financial company that has a dual listing in the UK and Hong Kong. The Company's portfolio is Asia focussed and provides life insurance, health insurance, retirement and asset management solution. Prudential is included in the FTSE 100 index.

Recent Events

  • On 17 July 2020, Athene Life Re Ltd, a subsidiary of Athene Holdings, invested USD 500 million in Jackson National Life Insurance and PPM America Inc, Prudential's US businesses. Athene received ownership of 11.1 percent and a voting right of 9.9 percent. Jackson is an annuity provider, and PPM America is an asset management company in the US.
  • 18 June 2020, Prudential stated that from 1 June 2020, Athene reinsured the annuity portfolio of Jackson. The in-force fixed and fixed indexed annuity portfolio was worth USD 27.6 billion.
  • On 9 April 2020, the Company issued senior unsecured notes worth USD 1 billion of 3.125 percent due in 2030.

Business Update as reported on 14 May 2020

(Source: Company Website)

In Q1 FY20, APE sales were USD 986 million in which Hong Kong & China contributed USD 442 million and Asia excluding China and Hong Kong. APE is the measure of new business activity. The sales in China and Hong Kong were impacted due to Covid-19. The new business profit declined by 33 percent year on year that was mainly due to lower volumes and interest rates. The IFRS operating profit for Asia business increased by 14 percent year on year in Q1 FY20 underpinned by recurring premiums and robust customer retention. The total premium in Q1 FY20 was USD 6.3 billion of which USD 4.0 billion was through Variable Annuity, whereas USD 1.0 billion and USD 1.3 billion was through Fixed Annuity and Guaranteed Investment Contract (GIC). As on 31 March 2020, the Prudential had available capital of USD 16.6 billion, and the required capital was USD 5.5 billion.

FY2019 Annual results (ended 31 December 2019) as reported on 20 March 2020

In FY19, the Company reported an adjusted operating profit from continued operations of USD 5,310 million, which increased by 20 percent year on year on a constant currency basis. The free surplus generated from continued operations before US EEV modelling enhancements was USD 3,764 million in FY19. The Company reported profit from continued operations of USD 4,405 million from Life new business. Group's profit after tax from continuing operations was USD 1,953 million and net cash remittances from business units from continued operations of USD 1,465 million. Prudential paid the second dividend of 20.84 pence per ordinary share on 15 May 2020.

Share Price Performance Analysis

1-Year Chart as on August-10-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Prudential PLC's shares were trading at GBX 1,218.8 up by about 1.19 percent from the last closing price (as on 10 August 2020 before the market close at 9:10 AM GMT+1). PRU's 52-week High and Low were GBX 1,509.00 and GBX 682.80, respectively. The Company had a market capitalization of £31.65 billion.

Business Outlook

The Company highlighted that the investment from Athene would improve the risk-based capital cover ratio, and it would also help the Company to meet the strategic objectives. The Company is assessing the option of minority IPO of Jackson, and it is confident about the liquidity position.

Phoenix Group Holdings PLC (LON: PHNX) – Completed acquisition of ReAssure Group in July 2020

Phoenix Group Holdings is a UK based group engaged in life and pension insurance business. The Group has brands, including Standard Life Assurance Limited and SunLife under the portfolio. Phoenix Group is included in the FTSE-100 index.

H1 FY2020 Half-year results (ended 30 June 2020) as reported on 6 August 2020

(Source: Group Website)

In H1 FY20, the Group generated cash of £433 million, which was £287 million in H1 FY19. The Solvency II was in surplus of £4.0 billion. It is the necessary capital held by the EU insurance companies. The shareholder capital coverage ratio was 169 percent, which determines how much a company's asset is funded by stock issue. The Group declared the interim dividend of 23.4 pence per share. The incremental long-term cash generation for new business was £358 million. The Group reported an operating profit of £361 million in H1 FY20, which increased from £325 million a year ago. Phoenix Group had assets under administration of £248 billion as on 30 June 2020 with a leverage ratio of 27 percent.

Acquisition of Reassure Group PLC

The Phoenix Group completed the acquisition of Reassure Group PLC on 22 July 2020 that added close to 14 million policies and assets under administration of £324 billion. In H1 FY20, the proforma cash generation was £1.1 billion with a Solvency surplus of £4.4 billion. The cash generation range in 2020 is expected to be in the range of £1.5-£1.6 billion. The acquisition of Reassure has delivered synergies from the first day of acquisition, and it is expected that it would have the annualized capital synergy of £120 million and cost synergy of £11 million.

Share Price Performance Analysis

1-Year Chart as on August-10-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Phoenix Group PLC's shares were trading at GBX 725.20 up by about 0.67 percent from the last closing price (as on 10 August 2020 before the market close at 9:10 AM GMT+1). PHNX's 52-week High and Low were GBX 806.00 and GBX 459.05, respectively. The Group had a market capitalization of £7.20 billion.

Business Outlook

The Group stated that the drivers of the saving and retirement industry have changed due to the pandemic. Phoenix is buoyant of the opportunity in the Open business division backed through defined benefit pension contribution. It is confident of getting new customers via value proposition provided through the products.

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