Proactive Investors - Run By Investors For Investors

Phoenix Group's Standard Life transaction a win-win deal

It's a beneficial deal for both sides: It increases Phoenix’s assets under management and cash generation while making Standard Life "a capital-lite asset gatherer" focused on asset management and UK platforms
Piggy bank
HSBC's pro-forma estimates imply a dividend yield of 6.8% a year from next year for Phoenix

HSBC has resumed coverage of Phoenix Group Holdings PLC (LON:PHNX) with a ‘hold’ recommendation after the firm’s acquisition of bits of Standard Life Assurance (SLA).

The proposed acquisition from Standard Life Aberdeen PLC (LON:SLA) of SLA’s UK and European life assurance business will increase Phoenix’s scale and will provide increased cash to fund dividends and provide flexibility around funding for future mergers & acquisitions.

READ: Phoenix Group launches rights issue to fund part of Standard Life Assurance acquisition​

The deal will provide Phoenix’s management with greater scope to exert operating leverage due to its variable cost structure and potentially provides access to the European closed life market.

Despite its upbeat view of the deal, HSBC has cut its target price for Phoenix to 750p from 830p, reflecting higher free cash flow estimates offset by an increase in shares in issue.

As for Standard Life, that gets a ‘buy’ recommendation from HSBC, with a new price target of 380p.

“However, we are cautious around Adjusted EPS [earnings per share], and see 4% dilution in 2020e from the transaction as we expect outflows to continue and assume lower investment returns (1% pa over 2019-20e),” HSBC said.

“Also, clarity is needed on certain issues to measure value creation: (i) regulatory capital requirement (under CRD IV) allowing us to analyse capital flexibility; and (ii) strategy for China and India life insurance JVs, which have limited synergies with rest of the group,” it added.

Shares in Phoenix were down 1% at 672.5p while those in Standard Life were down 1.7% at 328.1p.

View full PHNX profile View Profile

Phoenix Group Holdings PLC Timeline

Related Articles

September 01 2018
The group manages £7.8bn of funds: £2.8bn in the UK; £2.9bn in Sweden; and £2.1bn in the Netherlands.
Employee benefits
May 09 2019
The group provides various programmes including insurance plans, salary sacrifice schemes, discounts and rewards

© Proactive Investors 2019

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use