I have plans to initiate a position in regard to stocks mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from subscribers to Premium Membership). I have no business relationship with any company whose stock is mentioned in this article.
Buying fear is the very idea of value investing.
Going where others only see financial chaos is how I spend my time researching stocks that are geared towards outperformance.
Just Retirement Group Plc’s (LSE: JRG) share price took a real hammering recently and with good cause: it’s business model was given quite a hefty left and right hook by Chancellor George Osborne.
I’ll place this into context.
Just Retirement Group Plc is a specialist UK financial services business that provides financial solutions to people in or approaching retirement.
The company provides three basic products:
- Enhanced annuities
- Equity release mortgages
- Fixed term annuities
At least it did before the budget on 19 March 2014, the day George Osborne announced that UK retirees will be given vastly more freedom over their savings.
In other words, they will no longer be forced to buy annuities (a savings product that ensures a steady form of income until death).
When the changes come into effect retirees now have the opportunity to cash out their pensions or move them into new investments.
As you can imagine this hit pension providers hard and sent their share prices plummeting.
In JRG’s case, it’s share price fell 44% on the news and has not recovered since.
To cut a long story short I’m buying on the open come Monday morning with a 50% position (2.5% of investment capital) and will place a buy stop at 175p for the remaining 50%.
Here is what CEO Rodney Cook stated on 12 May on Q3 results and the impact of the budget on the business (emphasis mine)
Our performance was strong in the third quarter of our financial year… Although operating conditions have become much tougher since the Budget, with sales at around half of pre-Budget levels, we are rapidly adapting our model to the new environment. I am confident that by continuing to offer customers a fairer deal in retirement we can deliver further shareholder value. Our flexibility is exemplified by our recent launch of a one year fixed term annuity. This will help customers retiring now to make use of the new rules when they are introduced next year, and further product launches will be announced in due course…We are also working hard to align capacity with demand and are today announcing a reorganisation to deliver some GBP14m of annual cost savings…
Tally what Cook said with that Steve Groves, CEO of Partnership Assurance Group (LSE: PA.), a provider of non-standard annuities who’s stock took a 56% hit on budget day (emphasis mine):
Since the Budget, we have seen quote volumes at approximately 50% of the pre-Budget level, indicating that annuities continue to represent an attractive retirement income option for many customers… The Budget has provided us with more flexibility to innovate, whilst continuing to give our customers the financial security they desire in their retirement. The new “Enhanced Choice Annuity”, launched on 12 May, which provides customers with the opportunity to receive a guaranteed income for life but also gives them the option to surrender their policy within the first 12 months. It is still early days in the post-Budget world, but I am encouraged by the recognition by customers and advisers that the guaranteed income for life provided by our annuities… continues to be attractive. This, together with our promising pipeline of medically underwritten DB transactions, and our ability to utilise our unique intellectual property to develop new products to meet evolving customer preferences, allows the Board to be confident that Partnership is able to face the challenges ahead…
On the surface there isn’t much between the two since sales have dropped 50% for both firms but it appears to me that Cook edges it simply because his statement has a more proactive feel about it for example by quoting £14m of cost savings.
Also consider this.
JRGS’s sales for the last quarter were £497m, PA.’s sales were £254m 🙂
Directors at JRG also started to buy shares in the open market in the days following it’s share price collapse.
Directors at PA. did not.
I could go on but my mind is made up because I am satisfied that I’m buying fear with a margin of safety without trying to guess the bottom.