Pheonix Group Results Q2 2014

The Phoenix Group (PHNX) recently released their earnings for the second quarter of 2014 and the first half year. It was a very busy half year starting with their divestment of Ignis Asset Management which is the investment branch of the Phoenix Group. The divestment lowers their gearing to 35% on a pro forma basis which is in line with their aspirations to receive investment grade rating. The focus of the second half year of 2014 will be in talking to rating agencies to do just that. With the divestment they paid down 250 million pounds of debt which contributed to the lower gearing substantially. Another factor for the lower gearing was the issuing of a seven year bond as well as combining current bank facilities into one bigger facility. All of the new debt have longer expiration dates as well as lower interest rates.

They announced a dividend of 26.7 pence per share in line with last year's interim dividend. I was a bit disappointed at that, but I saw a good comment which was something similar to this; It is a zero sum game, they do have the cash for a larger dividend but on the other hand they need the cash for growth. The current yield is still quite substantial at 7.24%, so I'm actually liking the potential for growth. The groups goal is a stable and sustainable dividend which they seem to be able to deliver on even without future acquisitions. Potential acquisitions could enable future dividend increases and Analysis consensus believe that the dividend might increase for the final dividend of 2014.

The earnings per share as always been a bad measure when looking at the Phoenix Group. Cash flow remains strong even with the major lowering of debt. The total decrease of debt amounts to 450 MGBP both from the divestment and debt refinancing. As they look to acquire investment grade rating, interest expenses should lower even more. Their bond offering was oversubscribed which speaks to that effect. The oversubscription also allowed them to get the lowest interest rate in their target range. The group now have £0.6 B of headway above ICA surplus requirements and £0.4 B headway with regards to IGD. The group also holds close to a billion pounds in cash which equates to £4.4/share. The total embedded value of the company (MCEV) is at £11.57/share. My interpretation of MCEV is the enterprise value of an insurance company and in the calculations of MCEV, future foreseeable cash inflow is also included.

Thoughts on the report? MCEV?

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Full disclosure: Long PHNX
Note: I wrote an analysis here (in Swedish)