RBC has reaffirmed its 'outperform' rating on Chesnara PLC (LSE:CSN) and maintained its price target at 320p, arguing that the group’s £260 million acquisition of HSBC Life’s UK operations will be transformational for the insurer.
The deal is expected to significantly strengthen Chesnara’s cash generation, dividend cover and long-term growth prospects, while keeping its balance sheet in good health.
The broker believes the transaction “hits the target in terms of strategic fit, financial merits and scale,” and sees clear upside from cost synergies, increased investor visibility and future M&A capacity.
Post-deal, RBC is forecasting a 1.52 times dividend cover for 2026 and 2027, a meaningful step up from the 1.36 times previously expected.
Chesnara has already confirmed a 6% one-off rise in its dividend, to be implemented with the final 2025 payout in May 2026.
The acquisition, funded through a mix of existing cash, a revolving credit facility and a rights issue, will increase group assets under administration to about £18 billion.
Despite its scale, the financing leaves room for further deals, with RBC noting the group’s estimated post-deal Solvency II coverage ratio at 175%, above the 140–160 per cent target range.
The portfolio adds around 454,000 policies and is expected to deliver more than £800 million in lifetime cash generation, including over £140 million in the first five years.
This should underpin long-term dividend growth, particularly as over 80 per cent of these flows fall beyond that initial period.
RBC also highlights operational strengths, notably Chesnara’s use of third-party administrator SS&C, which has already supported multiple policy migrations and is expected to smooth the integration of HSBC Life.
Fitch has upgraded the group’s outlook from negative to stable in response to the deal.
Valuation remains undemanding, according to RBC. The stock trades on a forward dividend yield of 8.8%, the highest among UK life insurers, with the shares still changing hands at a discount to book value.
Inclusion in the FTSE 250, expected in September, should also help raise the company’s profile with institutional investors.
Overall, RBC sees Chesnara as well-positioned to continue consolidating life books across the UK and Europe, and believes the HSBC transaction marks a “transformational milestone” for the group.
The shares are flat at 260p.