As expected, we have seen a marked decline in individually underwritten annuity (“IUA”) sales – although not to the extent that some commentators had initially predicted
Rodney Cook, Chief Executive Officer
When I first opened a position in Just Retirement Plc (LSE: JRG) on 8 June 2014 I’d set a buy stop to buy more Just Retirement stock at 175p after opening the position at 149p.
Here is what that looked like:
I still hold both positions.
The reason for the huge surge in the share price that eventually lead to the top up was a resilient sounding set of interim results announced on 24 February 2015.
Even though Avallux – the majority shareholder in Just Retirement – sold a 10% stake in JRG to institutional investors on 6 March (the reason for it’s subsequent price collapse) I still believe Just Retirement stock to be undervalued by the market.
The price has not recovered to anywhere near a reasonable assessment of intrinsic value for Just Retirement’s stock since it’s massive price decline on 19 March 2014.
If you recall the Bullingdon Club toff chinless wonder Chancellor George Osborne announced in the 2014 Budget that over 55’s will no longer be forced to buy an annuity on retirement sending the share prices of insurance companies and pension providers tumbling.
Consider the interim results from Just Retirement, in particular Rodney Cook, Group Chief Executive (emphasis mine):
“…around half of our underlying operating profit came from new business in H1 14/15, while the significant value of our back book supported total earnings. Net inflows after annuity payments and expenses are strongly positive, which underpins the growth in our back book.
We strongly welcome the FCA’s proposed reforms announced in December. Further encouragement for all retirees to shop around will give us access to a larger customer base and means that a fully brokered, medically underwritten individual annuity market could finally be achievable…moreover, at Just Retirement we have no legacy issues relating to past sales of annuities or pre-2000 pension products.
We have had a very good first half and whilst it remains to be seen what the second half will bring, we face the future with confidence that demand for our new products, underpinned by our medical underwriting skills, will be strong.”
It appears to me, from what management are saying that they are confident about future prospects and have shown an ability to win new business and thrive in the new regulatory environment that their industry faces.
As can be seen from the below financial highlights, management were not lying when stating that new business (Defined benefit solutions) £150 million of which was from the sale of two businesses:
Commenting on the increase in defined benefit business Cook stated:
…our DB division surpassed the level of IUA sales in H1 2014/15, which is noteworthy given that the unit was only founded in 2012. However, Q2 was exceptional due to the inclusion of two schemes of GBP75m and GBP76m. Prospects remain positive for this growing market
But even with all this accounting hop scotch I don’t think the numbers are as bad as the market is currently pricing Just Retirement stock when you consider a PE ratio of 9, a market cap of circa £745 million and pre tax profits of £90 million for this firm.
I’m holding but am reluctant to add more to my position at this stage.