ii view: income play Phoenix Group raises the dividend

First-half results to 30 June 2023

• Cash generated down 5% to £898 million
• Interim dividend up 5% to 26p per share
• Capital cushion or solvency II ratio down 9% from late December to 180%

Chief executive Andy Briggs said:

"As the UK's largest long-term savings and retirement business, Phoenix is executing on its single strategic focus - helping customers journey to and through retirement."

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ii round-up:

Life and pensions business Phoenix Group Holdings (LSE:PHNX) today detailed first-half cash generation which exceeded City forecasts, helping it declare a 5% increase in its interim dividend payment. 

The buyer of rivals and owner of brands including Standard Life generated cash of £898 million during the six months to the end June, underpinning a first-half dividend of 26p per share, up from last year’s interim payment of 24.8p per share. It is now on track to achieve full year cash generation at the upper end of management’s targeted £1.3-£1.4 billion range. 

Shares in the FTSE 100 company rose 1% in UK trading having come into this latest news down by just over a tenth year-to-date. That’s similar to rivals Aviva (LSE:AV.) and Legal & General Group (LSE:LGEN), although better than a near one-fifth decline for China and Asia focused Prudential (LSE:PRU). 

Phoenix has bought and integrated over 100 legacy insurance brands. It operates both closed, or heritage and open businesses. The heritage business comprises products that are no longer marketed to customers, and where Phoenix has stepped in as the custodian of the policies.

Net new business fund flows of £3.1 billion during the period rose from £1.8 billion over the first half of 2022, with Phoenix now on track to deliver positive net fund flows from 2024, a first in its history. 

Although down from 189% in late December, a capital cushion buffer, or solvency ratio of 180% remains at the top end of management’s 140-180% target range, providing scope to make further acquisitions.

Operating profit under the newly adopted accounting IFRS17 standard for the full year 2022 equated to £0.6 billion, half of the £1.2 billion outcome it would have been under the old IFRS 4 accounting basis, given required adjustments and a lower contribution from With-Profits and Unit-Linked business. First-half results under the new IFRS17 basis are pencilled in for 28 September.    

ii view:

Fierce competition and pressure on life and pensions providers to reduce costs has allowed Phoenix to grow via acquisitions and then strip costs. Well-known brands such as Pearl Assurance and Abbey Life are now both part of Phoenix. Its open business today includes workplace pensions and customer savings divisions. It has around 12 million customers with assets under administration of £269 billion. 

For investors, higher borrowing costs and elevated inflation could push some customers to reduce savings to meet higher bills. Heightened interest rates continue to provide a tough backdrop for markets, potential acquisition targets could prove harder to find, while competitors such as Aviva are not standing still. 

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On the upside, good progress with its most recent Sun Life of Canada UK acquisition has been made. Its array of active brands includes Standard Life and SunLife, its capital cushion or solvency II ratio remains comfortably within the group’s own target, while moves to further digitalise its services are being made. 

In all, and with the shares offering a forecast dividend yield of over 9%, income investors at least are likely to remain interested in Phoenix. 

Positives: 

• Eyeing further bolt-on acquisitions
• Attractive dividend payment (not guaranteed)

Negatives:

• Regulatory changes can impact
• Uncertain economic outlook

The average rating of stock market analysts:

Buy