22nd Mar 2024 10:08
(Alliance News) - Phoenix Group Holdings PLC looks "well-placed" to absorb any "turbulence" in the sector, according to Neil Shah, director of research at Edison Group.
Shah commented after the London-based life insurance provider unveiled "ambitious" new targets as it reported annual results which met and, in some areas, surpassed City expectations.
Shares in Phoenix climbed 9.6% to 535.19 pence in London on Friday. It was the best performing stock in the broader FTSE 100 which was up 0.9%.
Shah said Phoenix posted a "good" set of results with total cash generation rising from GBP1.5 billion to GBP2 billion – exceeding the company’s previous target of GBP1.8 billion.
Phoenix said new business long-term cash generation rose to GBP1.51 billion from GBP1.23 billion, meeting City expectations, and achieving its 2025 target two years early.
Phoenix said its solvency II surplus of GBP3.9 billion remained "resilient," and included a well-flagged GBP70 million consumer duty provision following a review of its back book products ahead of the July 2024 compliance deadline.
IFRS adjusted operating pretax profit increased 13% to GBP617 million from GBP544 million, driven by strong growth in its Pension and Savings business, ahead of the GBP599 million consensus.
Shah said Phoenix has benefitted from solid performance in each of its associated sectors at the beginning of 2024.
He noted Moody's predicts that UK life insurance will have a good 2024, saying that rising wages, falling unemployment, and automatic enrolment have helped to revive the sector – which had suffered owing to falling real incomes.
Additionally, as he pointed out, the UK became the 3rd largest pension asset management market in the world last year.
"It is too early to see the shape of Chancellor Hunt's proposals to drive more capital from pension funds into UK equities; but from these results, Phoenix Group Holdings looks well-placed to absorb any turbulence in the sector," Shah commented.
Phoenix also announced an ambition to grow operating cash generation by around 25% to GBP1.4 billion in 2026 from GBP1.1 billion in 2023, after which it is expected to grow at a mid-single digit rate over the long term.
These "ambitious" growth targets will support a new "progressive" and sustainable dividend policy, it said.
Total cash generation is targeted at GBP1.4 billion to GBP1.5 billion in 2024, with a three-year target of GBP4.4 billion across 2024 to 2026.
Phoenix intends to repay at least GBP500 million of debt by the end of 2026, and is aiming for GBP900 million of IFRS adjusted operating profit in 2026.
Citi analyst Andrew Baker said: "There are a lot of moving pieces that will take some time to fully digest but overall we think the new cash targets, commitment to deleveraging and pivot in dividend policy should be well received."
By Jeremy Cutler, Alliance News reporter
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