ii view: Phoenix Group beefs up cash and profit forecasts

Full-year results to 31 December 2024

• Operating cash generated up 22% to £1.4 billion
• Adjusted operating profit up 31% to £825 million
• Reported loss of £1.08 billion, down from a profit of £84 million in 2023
• Capital cushion or Shareholder Capital Coverage Ratio down 4% to 172%
• Final 2024 dividend of 27.35p per share
• Total 2024 dividend up 2.6% to 54p per share

Guidance:

• Now expects cumulative three-year total cash generation of £5.1 billion between 2024 and 2026, up from a previous £4.4 billion
• Now expects adjusted operating profit for 2026 of £1.1 billion, up from a previous £900 million

Chief executive Andy Briggs said:

“Our strong performance in 2024 and the operating momentum we have built will support us in delivering our growth strategy and have led us to upgrade our cash generation and adjusted operating profit targets through to 2026. 

“Delivery will give us the financial flexibility to reduce our leverage, while also sustaining our progressive dividend for shareholders. It also brings us closer to realising our vision to be the UK's leading retirement savings and income business."

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ii round-up:

Life and pensions company Phoenix Group Holdings (LSE:PHNX) today raised its cash generation forecast out to 2026, potentially enabling increased shareholder returns and group debt reduction.

Phoenix, which owns the Standard Life and SunLife brands, now expects cumulative three-year total cash generation of £5.1 billion between 2024 and 2026, up from a previous £4.4 billion. A final dividend of 27.35p per share, payable to eligible shareholders on 21 May, leaves the total payment for 2024 up 2.6% at 54p per share. 

Shares in the FTSE 100 company rose 8% in UK trading having come into these latest results up 4% over the last year. That’s below a near 12% gain for the FTSE 100 index itself over that time but in contrast to a 5% loss for China exposed assurer Prudential (LSE:PRU). 

Industry consolidator Phoenix has acquired over 100 insurance brands in its time, including Pearl Assurance and Abbey Life. Strong growth for Phoenix’s capital-light pensions and savings business helped drive annual adjusted profit up by almost a third to £825 million. 

Annual cost savings of £250 million to the end of 2026 are now expected to aid a target of full-year adjusted operating profit come 2026 of £1.1 billion. That’s up from a previous target of £900 million.

Phoenix group’s capital cushion, or Shareholder Capital Coverage Ratio (SCCR), fell marginally year-over-year to 172% from 176%, but remains comfortably in the top half of management’s 140-180% operating range.

Hindered partly by required group investment costs, a reported annual loss of £1.08 billion compared with last year’s profit of £84 million.

The group’s Annual General Meeting (AGM) is likely to be held mid-May, with first-half results potentially announced mid-September. 

ii view:

A constituent of the FTSE 100 index, Phoenix Group has around 12 million customers and over 6,500 staff. The company’s day-to-day businesses include workplace pensions and customer savings. High competition and pressure on life and pensions providers to reduce costs has allowed Phoenix to grow via acquisitions and then strip costs. Debt acquired in the process is now being reduced, aided by high cash generation. 

For investors, elevated borrowing costs may still be pushing some customers to reduce savings in favour of meeting increased loan and mortgage repayments. A previously planned sale of its SunLife business was later scrapped, raising questions about strategy. Costs for businesses generally remain elevated, while the group’s capital cushion, or SCCR has reduced marginally. 

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More favourably, cash generation is ahead of management’s prior targets. Aided by ongoing cost cuts, profits for the full year 2026 are now expected to be higher than previously estimated. The group’s SCCR remains at the top end of management’s target range, while a drive to cut group debt is ongoing. 

On balance, and despite continuing risks, more than five years of consecutive annual dividend increases and a forecast dividend yield of over 9% should ensure this UK savings giant remains popular among income seekers. 

Positives: 

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

Negatives:

• Regulatory changes can impact
• Uncertain economic outlook

The average rating of stock market analysts:

Strong hold