Member Info for Meconopsis

“Meconopsis, I think your measure of growth (in v out) should deduct the interest on the CSM from the out to get a better view of the flow of value.”

Hmmm, 🤔 🤔 🤔

I know what you mean, but it has the disadvantage of becoming a bit more “accountingy”, which is what I was trying to avoid with a simplistic view of “are you adding faster than using”.

I’m waiting on M&G on Wednesday and am going to try a side by side comparison.

“ For those on here who have spouted about dividends being paid out of debt, read the RNS very carefully. In particular look for the short paragraph about half way down that discloses the amount of distributable reserves. If you don't understand what that means do a Google search to find out!”

Good catch - I’d missed that.

Broadly the market capitalisation - or 10 years dividends.

Very good results and - IMV - a much stronger performance than either LGEN or AV.

If you’ve seen my posts on both LGEN and AV. then you’ll see that I’m taking a view that what really matters - beyond all the accounting shenanigans - is the rate at which the future store of profits (CSM) is being topped up as it’s being drawn down.

The headline looks great - CSM up by 14%.

But the CSM moves for a variety of reasons - this year’s profit from previous years is drawn down; this year’s new business makes profits for future years; we make (not insubstantial) money on the CSM pot; and “variances” are applied to the CSM to reflect ongoing changes in assumptions - such as longevity.

My view is what we should really care about is new business in vs draw down. Interest is lovely, but really all it’s doing is updating the CSM for inflation. Assumptions made one year can be unmade next year.

Slide 27 in the slide pack accompanying the results is our friend here and the news is less rosey - new business profits in of £248m plays £281m drawn down. So, we’ve taken £33m more from the pot than we’ve put in.

Both LGEN and AV. are in the same position.

What is different here, though, is the strength of the business growth and (I’m told from within the company) an extremely strong focus on cost cutting.

The updating of targets shows real confidence; as does paying down £300m of debt and seeking to generate £300m of excess profit next year at the same time as continuing to reduce debt.

That £300m promises either more acquisitions or a buy back methinks.

Up a well-deserved 6.5% as I type and - I think - still significantly undervalued.

Very much so Straycat.

Their core proposition is “come in and learn to paint a free model with us”, followed by “come and play the games and learn the rules”.

They are very good at the community side of things and, certainly my local store, runs gaming sessions at local schools.

My godson’s dad loves it because it not only keeps the kids off their screens, but also that they sit, chat, build, paint and play together.

I love it because in know that every time I give them some money it goes straight into GAW and a very small portion comes back into my pocket 🤣

Apple’s store proposition has always been that you can come in, try the tech, ask questions and stay as long as you like - all without any sales pressure.

“But thanks anyway.”

You seem to have taken my post other than I intended it.

I bought APPL stock at the point where I noticed an ever number of commuters in London with white-cabled headphones.

I bought GAW for broadly the same reason. I see the loyalty and “stickiness” of the client base.

I also see very striking similarities to Apple in their approach to business - passionate staff; stores where the emphasis is on experiencing the product over selling stuff; an emphasis on product quality; vertical integration within the business; tightly controlled IP; a classic “wide moat” business (one of the few in the UK).

Cpt.Hornblower - I must say that I agree with you more than I disagree with you.

The divided payment structure (big and small payment - and relatively close together) creates a "void" when there's nothing for the market to get excited about or react to.

Go into a shop - preferably just after school's out. Hang out. Look at the product and its quality. Speak to the passionate staff. Paint a model and (hopefully) listen and watch whilst those passionate staff patiently explain the game to a youngster whose parents will see table top gaming as a far better use of their child's time and their own money than online gaming.

I often think that Warhammer has a very inclusive culture like skateboarding. Turn up at a skateboard park anywhere in the world and - no matter what your ability - ask for help and someone will teach you something.

Apologies - having a typo-tastic day...

"I'd argue that this is of benefit as it provides a proper view of" should be...

I'd argue that this is of benefit as it provides a proper view of dividend sustainability by quantifying accumulated profits.

The cut off bit...

And/but IMV management attention now needs to focus on growing those core bits of the business.

"Dividend cover ratio is a very important metric when considering any investment. One must ask the question: How safe is the dividend and for how long?"

I completely agree that we all need to consider the sustainability of the dividend. And, in the "old days" your statement was entirely true. But the accounting changes have - in part - messed all that up.

The issue is that calculated based on IFRS EPS, which is based on IFRS profit, which is based on having to include unrealised movements in investment values in its calculation.

You can get to a better view of ye old Dividend Cover by looking at that Core operating profit of £1,616m on page 2, which is one of their alternative performance measures.

But even this doesn't take you back to a comparative old measure as IFRS17 has diverted "future profits" into the CSM.

I'd argue that this is of benefit as it provides a proper view of

A possible way of looking at this is "CSM Cover" (my term) - that is, "To what extent are dividends covered by the CSM?".

One thing we have to remember is that the CSM is untaxed - so we have to knock off 25%.

Total dividends are £1.23bn against a CSM of £9.7bn (75% of £13.292bn) - so approximately 8 years "cover".

As an "interesting" side note, page 2 of the report includes new and useful "CSM (net of tax) + Book Value" and "CSM (net of tax) + Book Value per share (p)" values. These give you a bottom line position on NAV.

I'm going to preface this we the statement that I hold a (by most people's standards) large long position that I have no intention of selling.

But I also have to eat my prediction of "more good news to come" that I made last week. We essentially had another £500m of buybacks to add to the £1bn promised with the US sale completes.

But we also had what looks like a year of stagnation in the core business.

As we settle into the IFRS17 regime, my PERSONAL VIEW is that what matters in the results is essentially the rate at which the future store of profits (CSM) is being used/replenished. And, in particular, the rate at which it's being drawn down than added to by new business. As my experience of reading this stuff develops then I'm taking a view that I'm ignoring "adjustments" as positive ones this year could be reversed next year.

Interested readers might want to read along at https://group.legalandgeneral.com/media/v1kde1i3/2024-full-year-results-full-press-release-and-analyst-pack.pdf

Overall CSM is up from £12,994m to £13,292m (page 2).

Next you need the two tables on page 36 - we're looking at the two right-most columns and we want the following rows:

- As at 1 January 202X

- CSM recognised for services provided/received - i.e. how much was drawn down

- Contracts initially recognised in the year - i.e. how much was added from new business

Institutional shows:

- 2023 - £591m drawdown vs £865m added - so net £274m added

- 2024 - £650m drawdown vs £489m added - so net £161m drawn down

Retail shows:

- 2023 - £462m drawdown vs £320m added - so net £142m drawn down

- 2024 - £487m drawdown vs £351m added - so net £136m drawn down

What helps the overall position is the "Finance expenses from insurance contracts" line, which (I'm pretty sure) shows the money made on just having the CSM laying around.

So, while the overall CSM has gone up, it's done so for non-business performance reasons, which doesn't delight me.

[As a side note, Aviva is in a similar position.]

PRT business is down, although the overall numbers are improved by them not reinsuring as much of the business (saving around £2.5bn in reinsurance costs versus last year) - page 6.

And Asset Management continues to struggle.

There ARE good bits in the results.

And we need to be aware that the PRT business is "lumpy" and complex - so it's easy for business to slip the wrong side of the line. (A friend is a pensions lawyer involved in these things and, as he say, "deadlines" are more good intentions given the complexity of even simple PRT deals.)

There has been a great deal of senior management attention internally on the creation of the Corporate Investments unit and working out what to do with those assets.

And there is substantial investment going into Asset Management to drive efficiencies and a move to focus on higher margin business.

And/but IMV management attention now needs to focus on growing those co

"...the dividend cover isn't the best... [s]aving grace here is it's significant cash reserves..."

Phil - you need to see the CSM as part of the dividend cover. Since the introduction of IFRS 4 (mark to market) and IFRS 17 (recognition of insurance profits), it's been a fundamentally broken measure.

Things appear to be set fair .

And if there’s one thing the LSE chat threads hate is the inability to whinge about something ;)

So…I’ll put it out there now that I suspect that, if the first Amazon offering is a success, then Amazon will seek to buy GAW for the IP. The purchase of the Bond IP in full following the acquisition of MGM shows the potential direction of travel.

Amazon have a saying that “other people’s margin is our opportunity”.

Discuss.

(There, I’ve given us something to whinge about!)

“Xdiv in April, this share is not rising to the occasion at all”

The general “form” is that wait for the results announcement on 17 March before anyone gets too excited about ramping up the share price towards XD.

But call me old fashioned.

@LIBERTY2 - good point. Well made. :)

A lot of good news has already been disclosed in terms of shareholder returns.

But I suspect that they've held back some good news. You don't release all your good news in advance of the main event.

On a separate note, there seems to be a rotation back into financial services in the US, which will hopefully push value-seekers to look over here. Financial services is, after all, a tariff-proof business.

"My only concern here is AVIVA purchases, IF, that sh--t Company try to buy this Company, the divi will disappear."

The RNSs show MNG buying Aviva shares. Not the other way around.

The holdings are below the normally disclosable threshold, but have to be made at the moment because of Aviva's acquisition of DLG.

IIRC any position over 0.5% has to be disclosed during a takeover.

"Atalaya Mining - why would they not have been promoted to the 250, but THG were?"

It looks like Atalaya is Spanish. Only UK companies can form part of the FTSE100 and 250.

See the note on the front page here - https://www.lseg.com/content/dam/ftse-russell/en_us/documents/faq/ftse-uk-index-series-faq-fast-entry-thresholds-and-sterling-requirement.pdf

@TheTrotsky

IFRS17 and therefore the CSM relates to all sales of insurance products.

General insurers recognise profit more quickly as it's a shorter term product and profit/loss are generally recognised within the bounds of the bounds of the policy dates. But, even then, it's not as simple as that. Say your house insurance covers for public liability; someone visits; falls; hits their head and dies from an injury as a result in five years time - then whoever insured the property at the time of the accident carries the liability.

For this reason, 70-80% of the profit gets recognised "immediately", but the rest might be spread over 5-10 years.

Even "immediately" isn't quite so simple. So if a policy is written half way through Aviva's financial year then half of the profit will be in this year's accounts, with the other half deferred via the CSM into next year.

That's all before we get into "normal" claims, where settlement (and sometimes claims) will normally extend past the end of the in force date.

I'm not great with the mechanics of health policies, but it'll be a similar pattern.

We can agree to differ on how much we personally value movement in the CSM. From my point of view, Aviva themselves call it their "store of future profits", so I consider it important to watch.

It's worth saying that I'm long here with a substantial position. Nothing in my post changes that. I do, though, think that one should look at stuff like this for early warning signs of decline / a fundamental change in the nature of the business.

PS - an interesting point that I didn't initially spot was that one reason for enhanced drawdown is the (wonderfully euphemistic) "improved mortality experience" identified in the latest mortality and morbidity research. That is, people are expected to die more quickly than was previously assumed.

PPS - interestingly (to me) mortality and morbidity changes good for one life insurer might be bad for another. It's all to do with the demographics of your policy holders.

If you read anything then I'd encourage you to look through the analyst slide pack at https://static.aviva.io/content/dam/aviva-corporate/documents/investors/pdfs/presentations/2024/aviva-full-year-2024-analyst-presentation.pdf

In general, the analyst packs are always the thing to look at if you look at anything as they give the key messages without the verbiage. ALTHOUGH, companies do then tend to hide bad news in the verbiage of the full report.

Given the IFRS 17 changes (deferral of recognition of profit) then the key number I'm personally interested in is how the Contractual Service Margin (CSM) changes.

In broad terms, CSM is a "store of future profits" - this year's new business creates profits that can be drawn down over a number of years. So if you write new business whose profits are recognised straight line over five years then this year you recognise 20% of the profit and stick the remaining 80% in the CSM. Next year you draw down that year's 20%, etc.

We want the CSM to be increasing - that is, more money going in than being taken out.

[It's not *quite* this simple as the draw down are subject to assumptions that can change. For example, the Office of National Statistics updates longevity forecasts every year and if Aviva has written an annuity then the longevity forecasts will impact the CSM.]

Slide 42 is your friend here. The headline growth is 7%, which is good, but it's worth noting that drawdown of £697m exceeded new business added of £589m. I leave you to take your own view on how good this is.

If you're invested in LGEN, MNG, etc then this is the slide to look for first in the analyst pack.

Slide 20 is interesting from a dividend and buyback perspective. It suggests that they are targeting dividend growth of 7-8%+ and not to expect further buybacks until 2026.

There's a nice explanation of the business on slide 26 for anyone that finds the business a little opaque.