ii view: Phoenix scraps proposed sale of SunLife

First-half results to 30 June

• Cash generated of £950 billion, up from £898 million H1 2023
• Adjusted operating profit up 15% to £360 million
• Reported loss of £646 million, up from £245 million in H1 2023
• Capital cushion or solvency II ratio down 8% to 168%
• Interim dividend up 2.5% to 26.65p per share

Chief executive Andy Briggs said:

"Phoenix's vision is to be the UK's leading retirement savings and income business, and I am pleased with the initial progress we have made in executing on our 3-year strategy, as our 2024 interim financial results demonstrate.

"I am confident that as we continue to execute on our strategy we are building a growing business that is on track to deliver our financial targets and create shareholder value."

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ii round-up:

Life and pensions company Phoenix Group Holdings (LSE:PHNX) today scrapped plans to sell its over-50s life assurance business SunLife, sighting uncertainties in the protection market for the change of plan. 

SunLife, which generated £16 million of profits in 2023, will now be kept, with a focus on enhancing the value it generates. Overall group-wide adjusted operating profit for the six months to 30 June rose 15% year-over-year to £360 million. 

Shares in the FTSE 100 company fell 2% in UK trading having come into these latest results up by close to 8% year-to-date. That’s similar to Aviva (LSE:AV.) and in contrast to double-digit falls for rivals Legal & General Group (LSE:LGEN) and Prudential (LSE:PRU) in 2024. The FTSE 100 index itself is up 7%. 

Industry consolidator Phoenix has acquired over 100 insurance brands in its time, including Pearl Assurance and Abbey Life, with its main activity brand today being Standard Life. 

Accompanying outlook comments highlighted it is on track in its efforts to achieve previously detailed mid-term financial targets. These include generating adjusted operating profit of £900 million for the financial year 2026, a potential from £617 million in 2023. 

First-half operating cash generation of £647 million was up from £543 million this time last year, helping a 2.5% increase in the interim dividend year-over-year to 26.65p per share. That’s payable to eligible shareholders on 31 October. 

A reported after-tax loss of £646 million was an increase from £245 million in 2023, driven by £698 million of charges due to adverse economic variances from higher interest rates and global equities and as a result of its SII, or solvency hedging approach. 

Full-year 2024 results are likely to be announced in mid-March. 

ii view:

High competition and pressure on life and pensions providers to reduce costs has allowed Phoenix to grow via acquisitions and then strip costs. An annual cost savings run rate of £250 million is being targeted to the end of 2026. Phoenix’s day-to-day businesses include workplace pensions and customer savings. The FTSE 100 company has around 12 million customers with assets under administration of around £290 billion. 

For investors, the potential sale of SunLife was announced back in June, with the business then seen as no longer core in the delivery of management’s vision to become the UK's leading retirement savings and income business. Elevated borrowing costs may still be pushing some customers to reduce savings in favour of meeting increased loan and mortgage repayments. A capital cushion of 168% is down from 176% as of late December, although within management’s target of 140% to 180%, while costs for businesses generally remain heightened. 

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To the upside, workplace net fund inflows of £3.3 billion and up from £1.8 billion a year ago, helped increase adjusted profits. A series of financial performance improvements by 2026 continue to be pursued. Ongoing business simplification leaves Phoenix on track to deliver £50 million of run-rate cost savings by the end of 2024, while a drive to cut group debt is being made. 

For now, and despite ongoing risks, more than five years of consecutive annual dividend increases and a forecast dividend yield above 9%, are likely to see investors in this life and pensions industry consolidator stick around for the income. 

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:

Cautious buy