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Summary
- The British finance minister, Rishi Sunak set to announce a £2.0 billion package for job creation for people aged under 25 years.
- As per the industry experts, the UK labour market is expected to be weighed down by job crisis.
- Phoenix Group would complete the acquisition of ReAssure Group PLC in July 2020.
- Argenta Insurance acquisition to be value additive for Chesnara PLC, and likely to generate an economic value of approximately £6.9 million.
- Phoenix Group and Chesnara declared a full-year dividend for FY2019 of 46.8 pence and 21.3 pence per share, respectively.
Given the above market conditions and business updates, we will discuss two financial stocks - Phoenix Group Holdings PLC (LON:PHNX) and Chesnara PLC (LON:CSN). The shares of PHNX were down by 0.44 percent whereas the stock price of CSN was up by 1.93 percent (as on 8 July 2020, before the market close at 2.20 PM GMT+1). Let’s walk through their financial and operational updates to understand the stocks better.
Phoenix Group Holdings PLC (LON:PHNX) – Strong synergies delivered in FY2019
Phoenix Group Holdings is a consolidator of life assurance funds. The Group manages closed life & pension funds and underwrites new products & policies. The brand Standard Life Assurance Limited operates the open business, and SunLife brand sells financial products. The Group has 10 million policyholders and £248 billion of assets under administration. The Group is listed on the London Stock Exchange and is included in FTSE-100 index.
FY19 Annual results (ended 31 December 2019) as reported on 9 March 2020
The Group generated cash of £707 million, of which £421 million was organic contribution whereas £286 million was due to management actions. The Solvency II, which is the amount of capital that is required to be held by EU insurance companies, was in surplus of £3.1 billion. The shareholder capital coverage ratio was 161 percent, which determines how much a company’s asset is funded by stock issue. The Group declared a final dividend of 23.4 pence per share that reflected a full-year dividend of 46.8 pence per share for FY19. The Group generated capital synergies of £145 million through Standard Life Assurance transition programme. By the end of 2019, the Group made capital synergies of close to £645 million of target £720 million since the acquisition of Standard Life Assurance.
Acquisition of ReAssure Group PLC
The Group is expected to complete the purchase of ReAssure Group PLC in July 2020 for £3.2 billion. Post-acquisition, the Group will have more than 14 million customers with assets close to £330 billion under administration. The integration of both companies would generate capital and cost synergies of approximately £800 million. The increase in cash generation would support dividend growth. Both groups combined are expected to make cash close to £19 billion over long-term, of which £5.9 billion is expected to be generated over the next four years. The cash generation of the Combined Group is expected to be close to £13.1 billion from 2024 onwards, which would be enough to payoff £3.5 billion outstanding shareholder borrowings whereas the additional cash generation would support growth opportunities and dividend payouts. The cash generation cited excludes cash generation from new businesses post 2020 and management actions post 2024.
Combined Group Cash Generation
(Source: Company Website)
Share Price Performance
6-Month Chart as on July-8-2020, before the market close (Source: EODHD/Others, Thomson Reuters)
Phoenix Group Holdings PLC’s shares were down by 0.34 percent and trading at GBX 640.20 per share (as on 8 July 2020, before the market close at 2.32 PM GMT+1). Stock 52-week High and Low were GBX 806.00 and GBX 459.05, respectively. The Company had a market capitalization of £4.64 billion.
Business Outlook
In FY20, the Phoenix Group targets to generate cash in the range of £800-£900 million, which is supported by strong solvency position and investment-grade rating. The plan is to complete Phase 2 and start Phase 3 of the transition of Standard Life Assurance to generate total cost synergy of £1.2 billion. The focus also remains to grow Open business along with completing ReAssure Group acquisition.
Chesnara PLC (LON:CSN) – Acquires life and pension business Argenta Insurance in the Netherlands
Chesnara is a UK based life assurance and pension policies management Group. The Group operates in the UK, Sweden and Netherland. The United Kingdom business underwrites life risks, such as those associated with death, disability and health. It is also engaged in asset management for customers saving and retirement needs. The Swedish business underwrites life, accident and health risks. It also offers a collection of investment contracts. The Dutch Company is comprised of the life and general insurance businesses.
FY2019 Annual results (ended 31 December 2019) as reported on 15 April 2020
The Group generated cash of £36.7 million lower than £47.8 million in FY18 due to symmetric adjustments. The divisional cash generation was £50.8 million lower than £63.9 in FY18. The economic value after dividend distribution and inclusion of foreign exchange loss was £670.0 million. The economic value earnings after including investment market movements were £104.0 million. The full-year dividend for FY19 was 21.30 pence per share. As on 31 March 2020, the Group solvency ratio improved to 163 percent from 155 percent as on 31 December 2019.
Acquisition of Argenta Insurance
In 2020, the Group is expected to complete Argenta Insurance acquisition in the Netherlands. The purchase is likely to be at a 22 percent discount to the economic value. The acquisition was announced in November 2019 and would strengthen the Group’s position in the Dutch market. The Group also acquired Monuta Insurance in October 2019. Monuta is a provider of insurance products in the Netherlands.
Overview of Dividend Performance
(Source: Company Website)
Share Price Performance
6-Month Chart as on July-8-2020, before the market close (Source: EODHD/Others, Thomson Reuters)
Chesnara PLC’s shares were up by 1.80 percent and trading at GBX 289.62 per share (as on 8 July 2020, before the market close at 2.33 PM GMT+1). Stock 52-week High and Low were GBX 367.00 and GBX 200.00, respectively. The Company had a market capitalization of £426.94 million.
Business Outlook
The economic value of the Group is expected to be deteriorated by approximately £90 million (from the position of £670 million at 31 December 2019) due to the Covid-19 pandemic. However, Chesnara is confident about the liquidity position and believes the balance sheet to be strong even after dividend payment. The new businesses in the Netherlands and Sweden were impacted due to Covid-19 and may require capital infusion for support. The focus of the Group remains to maintain the dividend payout.
