Phoenix Group Holdings PLC

Phoenix Group Holdings PLC (LON: PHNX) is an FTSE 100 listed entity that is engaged in insurance services. It is also engaged in the long-term savings and retirement business.

The final dividend of 24.8 pence is expected to be paid on 9 May 2022.

Investment Rationale – Buy at GBX 623.80

• Growth in Key Metrics: The assets under administration increased from £307 billion in FY20 to £310 billion in FY21. Also, the IFRS operating profit was increased from £1,199 million in FY20 to £1,230 million in FY21.
• Strong Cash and Dividend Delivery: PHNX generated more cash than the target range in FY21, and thus, increased its dividend distribution.
• Business Simplification: The disposal of Ark Life Assurance Company (for a total cash consideration of €230 million) shall accelerate the cash release and simplify its European business, to drive incremental value.
• Valuation Multiples: As per valuation metrics, EV/Sales, Price/Earnings, Price/Cash Flow, Price/Book, and EV/EBITDA, multiples of the Phoenix Group Holdings PLC are currently lower as compared to the corresponding multiples of the Insurance industry.
• Technical Indicator: From a technical standpoint, 14-day RSI (~47.30) is in the oversold territory, while the stock price is hovering close to the lower standard deviation of the Bollinger Bands.
  

Risk Assessments

• Macroeconomic Risks: Record inflation, central bank tightening, and wage pressure are predicted to dominate the year 2022. All these variables have the potential to harm business profits and stock markets. The Federal Open Market Committee's meeting minutes scheduled to be released on 06 April 2022 will bring more clarity regarding the path for interest rate hikes.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.

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

 (Source: Company Website)

• Record Cash Generation: In FY21, PHNX generated £1,717 million of cash with exceeded the target range of £1.5 to £1.6 billion.
• 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 Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

*Peers: Aviva PLC, M&G PLC, and Beazley PLC.

*All peers considered are LSE-listed Companies from the Insurance sector.

Conclusion

Based on the robust cash generation, resilience balance sheet, increased new business, supported by the valuation conducted above, we have given a “Buy” recommendation on Phoenix Group Holdings PLC at the closing market price of GBX 623.80 (as of 5 April 2022), with a lower-double digit upside potential based on 9.95x Price/Earnings (approx.) on FY22E Earnings per share (approx.).

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.

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

Note 2: Investment decision should be made depending on the investors’ appetite on 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 subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which 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 5: ‘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.

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 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 unfavorable movement in the stock prices.

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