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I'm not wild about the sales either. But I think you're overlooking that the outstanding loan balance were £537m. On the face of it as well as the interest received to date, they have made a £150m profit here by writing these mortgages and selling them on to Rothesay. Which looks like nice work if you can get it.
"This is a capital transaction not a trade for profit. If it generates capital of 35m or more
Then the P&L effect is offset by the movement in reserves and the NAV will rise….."
We can agree it certainly isn't a trade for profit: "The sale will result in an IFRS net of tax loss of c£35m which includes the impact on the insurance liabilities resulting from the expected new asset mix."
The headline loss on the trade is actually £85M (£772M of value sold for £687M). The calculated IFRS net of tax loss of c£35m includes the impact on the insurance liabilities resulting from the expected new asset mix. Net Asset Value will not rise, it will diminish by an "expected" £35M.
Bone-headed regulation of insurance companies arising from the Gordon Brown era of financial incompetence does not help but I expect better of management. I bought into JUST seeing long-term value not short-term dividends, but that value is being sold cheaply to others - why?
A while back JUST advised it had never lost money on a single equity release contract. Now it sells a bundle of equity release contracts conservatively valued on an IFRS basis at £772M for £687M.
Meanwhile JUST is actively incurring heavy marketing, sales and administration costs to generate...... new equity release contract sales!
I for one will not be cheering when this management proclaims what a magnificent job they have done on our behalf and declares a 1p share dividend.
AceOfClubs
This is a capital transaction not a trade for profit. If it generates capital of 35m or more
Then the P&L effect is offset by the movement I n reserves and the NAV will rise…..
A more secure company needing less capital is what the regulator wants….the capital can be reinvested or paid as a dividend…..so not necessarily a bad thing.
Unfortunately more bad news for JUST shareholders - a further £35M loss created by management actions. Are there less risk assets than those backed by UK residential property? The third dumb move in 15 months.
"The impact of the sale on the Group's Solvency II capital ratio will be broadly neutral". Doh!
See: https://www.reuters.com/world/uk/britain-unlock-billions-pounds-by-easing-insurance-capital-rules-2022-02-21/
AceOfClubs
RNS this morning....
Just announces that it has completed the sale of a portfolio of LTM to Rothesay, with a current outstanding loan balance of £537m and an IFRS value as at 31 December 2021 of £772m. The LTM assets being sold form part of the investments used to back the insurance liabilities of the Group. The consideration is c£687m, payable in cash.
The proceeds received will be reinvested in a mixture of other fixed interest assets to back the insurance liabilities of the Group. The sale will result in an IFRS net of tax loss of c£35m which includes the impact on the insurance liabilities resulting from the expected new asset mix.
This is the third sale by the Group of an LTM portfolio over the last fifteen months and further reduces Just's exposure to UK residential property risk. This completes the Group's programme of LTM portfolio sales.
The Group will announce results for the year ending 31 December 2021 on 10 March 2022 and will update the market on its Solvency II position and reduced sensitivity to moves in the UK property market at that time. The impact of the sale on the Group's Solvency II capital ratio will be broadly neutral.
Just has been a regular disappointment….not all by its own hand as the regulator has moved against it, particularly in equity release mortgages.. after the regulator moved house prices have boomed so the risk of properties being in negative equity is much reduced. What we have now is a better balanced business.
The concern for several years has been capital adequacy, the return of the dividend will mark the end of regulatory concerns about this and allow a rerating of the shares. An increase in interest rates should be helpful too as long as the effect on housing is not too great.
People still need the products….
Re the sp I would not expect it to trade much higher than 70% of NAV. A takeover would be around NAV. That is still 140-150p, I hope decent results should bring this in a further 12-18m.
New to this group, but have an interest in insurers to balance out some of my more outlandish holdings (thank God).
I saw this in the Investors' Chronicle (3rd February 2022) - https://www.investorschronicle.co.uk/ideas/2022/02/03/just-a-matter-of-time/
Bull points
- Capital generation is stable
- Bulk annuities market is booming
- Discount makes it a takeover target
- Dividends slated to return
Bear points
- Key man risk
"When it releases results on 10 March, Just expects organic capital generation to have doubled to £18m, a year ahead of a key management target."
"... larger Just peer Phoenix Group recently closed deals worth £4bn in premiums in the second half of 2021. The insurer has also been exceptionally acquisitive over the past decade. This inevitably leads to speculation that Just could become a takeover target for a larger insurance group like Phoenix."
"... the downsides now for Just relate to whether it can keep its management team together. Having proven his worth in the top job after guiding the company through its reconstruction since 2019, chief executive David Richardson may decide at some point to take on a bigger challenge in the world of asset management. But, overall, the boss’s career prospects shouldn’t affect the basic foundations that have been laid during his tenure."
"Based on RBC Capital Markets’ forecasts for 2022, Just shares trade on 3.7 times earnings for 2022, during which time a return to dividends is expected. The discount to tangible net asset value (TNAV) is even more extreme; RBC expects TNAV to hit 214p a share by the end of 2022, compared with a share price that struggles to break into the 90p range. In other words, investors are buying at a 60 per cent discount to the group’s tangible worth."
I'm struggling to find the catch that would help explain such a low share price!
One of the most undervalued stocks in my portfolio currently. At half year, NAV was 199p I believe - I think we might be in the range of 225-250p hopefully given 25% increase in sales. Current sp is a joke!
Crazy cheap……
Heading for a PE of less than 5.
A rerating to 7.5 is a 50% uplift……will we see that and a sp of 135p?
The majority of life insurers are trading below IFRS and in JRs case a significant discount.
I think concerns over SII capital adequacy driven by Equity Release Mortgage and NNEG were biggest concerns here.
The increased volume of business at a lower capital strain indicate that JR may be over the worst.