- Bulk and individual annuity sales show ongoing strong momentum
- Easing of Solvency II rules could facilitate further business growth
- Management raises dividend and guidance for 2024
“Higher interest rates might not be to everyone’s taste but a relative normalisation in the headline cost of borrowing, bond yields and returns on cash continues to benefit Just Group, as its bulk annuities business continues to gather momentum and retail annuity sales grow strongly after years in the doldrums,” says AJ Bell investment director Russ Mould. “Return on equity is now comfortably in the mid-teens percent, the dividend is growing, and management now feels confident enough to upgrade its prior forecast that profits would double by this year compared to 2021’s outturn of £211 million.
Source: Company accounts. IFRS17 accountancy standard introduced January 2023 so prior numbers not strictly comparable.
“All of this is giving the shares a boost to a six-year high, but the damage done by more than a decade of zero interest rates, not to mention the pension freedoms introduced by then Chancellor of the Exchequer George Osborne in 2014, mean the stock still trades well below its 2013 flotation price. Even more intriguingly, shares in the firm formerly known as Just Retirement and JRP Group still change hands at a very sizeable discount to the company’s tangible net asset value (NAV) per share figure of 240p.
Source: Company accounts. IFRS17 accountancy standard introduced January 2023 so prior numbers not strictly comparable.
“Mr Osborne’s reforms gave pension holders a far wider choice of options beyond just buying an annuity, an insurance product offered by companies such as Just, and zero interest rates and low bond yields further hurt pension holders’ interest in buying an annuity when the time came to retire. They also left many corporate defined benefit pension schemes in deficit, a trend which left many companies bearing a liability they did not wish to bear.
“Higher interest rates have changed the environment completely. Annuity rates are more competitive and help to provide particularly risk-averse individuals with a further option to consider when they plan retirement. Meanwhile corporations are taking advantage of reduced deficits or even pension surpluses to manage their DB pension scheme exposure through a bulk annuity, a specialist insurance product where Just Group is one of the market leaders, based on the 55 major transactions carried out in the first six months of 2024, compared to 35 in the equivalent period a year ago (and the 80 made during the whole of 2023).
“Bulk annuity sales rose 31% in the first half and retail annuity sales by 28%, to continue to trend that began a couple of years ago – and Just Group is now cashing in, quite literally, on business previously won. As the FTSE 250 index constituent began to write new business again, it had to set aside cash so it could meet its liabilities and reassure regulators that it could and would do so. Those policies already written are generating cash and funding new business, while the government’s plans to reform the EU’s Solvency II regulations could lessen the amount of cash that Just must set aside when it writes new business and enable it to grow faster still.
Source: Company accounts. Solvency II regulatory regime launched in January 2016. IFRS17 accountancy standard introduced January 2023 so prior numbers not strictly comparable.
“This narrative might not excite every type of investor, especially those who prefer the bright lights of artificial intelligence and technology stocks, but powerful cash generation could fund steady dividend growth going forward and also drive further increases in net asset, or book, value per share, to leave the shares looking even cheaper on a book value basis than they do today.”
Source: Company accounts, Marketscreener, analysts’ consensus forecasts
