This report is an updated version of the report published on 20 May 2022 at 8:23 AM GMT+1.

Phoenix Group Holdings PLC (LON: PHNX)

Phoenix Group Holdings PLC is an FTSE 100 index listed one of the largest providers of insurance services in the United Kingdom. Moreover, PHNX provides the long-term savings and retirement business with approximately 13 million customers and around £300 billion of assets under administration.

Recent trend of Dividend Payments 

PHNX has a progressive dividend policy and paid a final dividend of 24.80 pence per share on 09 May 2022, while the ex-dividend date was 31 March 2022. The full-year FY21 dividend remained at 48.9 pence per share. In comparison, the Company had paid a total dividend of 47.5 pence for the prior year.

(Source: LSE website; Analysis done by Kalkine Group)

Growth Prospects

• Strategic Priorities: The Company had invested in supporting future growth with the acquisition of the Standard Life brand. Moreover, PHNX had maximized shareholders’ value from the European operations with the disposal of Ark Life for a total cash consideration of €230 million.

• Environmental Targets: The Company has committed for the operations to become net-zero carbon by 2025. It is also setting a net-zero by 2050 target for the investment portfolio.
  

Key Risks 

• Regulatory Risk: Insurance sector is highly susceptible to change in the government’s policy, legislation, and capital requirement. Any lack of meeting the regulatory requirement can result in additional cost and penalties.
• Record UK Inflation: The rise in regulated household energy bills led to UK inflation leaping to 9% in April 2022, the highest level since 1982. It may adversely impact UK equities.
• Bank of England Warning: The Bank of England had trimmed its economic growth forecast for 2023 and is expected to show a contraction of 0.25% from a previously estimated growth of 1.25%. Moreover, it had also warned of UK inflation reaching around 10% very soon.

Key Fundamental and Shareholders Statistics of Phoenix Group Holdings PLC. 

MS&AD Insurance Group Holdings, Inc is the most significant shareholder as it holds nearly 144.88 million shares.

Financial Highlights (for the year ended 31 December 2021, as of 14 March 2022)

(Source: Company Website)

• Operating Profit: PHNX had shown a marginal year-on-year growth in operating profit before tax during FY21.
• Leverage Ratio: In FY21, it reported a Fitch leverage ratio of 28%, which remained in the target range of 25% to 30%.
• Top-line Growth: During FY21, PHNX also reported a growth in net written premium and net income. 

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 19 May 2022, PHNX’s shares were closed at GBX 620.40, down by around 2.39% from the previous day closing price. Stock 52-week High and Low were GBX 754.40 and GBX 559.20, respectively.

On a daily chart, the stock price is sustained above the 20-days exponential moving average of GBX 613.00. Hence, there could be an uptick in the stock price in the near term. Also, the MACD line has given a bullish crossover against the signal line.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

PHNX has prioritised the delivery of cash, resilience, and growth. Moreover, PHNX has set two new cash generation targets of one-year target range of £1.3 to £1.4 billion for 2022 and a three-year target of £4.0 billion from 2022 to 2024. The Company aims to reinvest surplus cash into Open business and M&A to support future dividend increases. Furthermore, PHNX has a strong Solvency II surplus to manage the key individual risk sensitivities. In a nutshell, PHNX remained optimistic about the prospects and seemed to capture maximum opportunities in the £480 billion UK Heritage market.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the strong dividend yield, record cash generation, regular dividend payments, recent disposal activities, and support from the valuation as done using the above method, we have given a “Buy” recommendation on Phoenix Group Holdings PLC at the closing market price of GBX 620.40 (as of 19 May 2022), with lower-double digit upside potential based on 9.22x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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