Member Info for Meconopsis

“…but these won't be sustainable if the capital value of the company continues to fall.”

The capital value of the company is increasing, not falling.

“I am not agreeing with the EPS forecasts as it’s outside my pay grade.”

That should have been…

I am not DISagreeing with the EPS forecasts as it’s outside my pay grade.

As it stands, the share price has taken a circa 30% hit for a 18% impact on profit.

Bearing in mind that the share price should reflect future years’ profits and you can see how overblown the drop is.

A 6-10% hit would be rational.

A 20% hit back to the highs of yesterday would reflect the single year loss.

Manfor - please don’t be unnecessarily defensive. I am not attacking you.

But, you’ve just jumped from NAV to EPS.

For me, EPS forecasts are what analysts do.

I am not agreeing with the EPS forecasts as it’s outside my pay grade.

I would, though, say that a 12% yield in 2026 is only a 6% yield if you have to wait the remainder of 2024 and 2025 to receive it.

BUT anyone who can read the annual report can calculate the NAV.

NAV = net assets / number of shares

CBG has only just published its annual report - so the net asset figure is there in black and white for us all to read.

AND, all I’m pointing out is that:

As CBG haven’t made a provision in the accounts for any potential compensation, which is what Lloyds has done, then you need to deduct your reasonable view of the likely compensation costs from the NAV.

If CBG had made a provision then it would be shown as a liability on the balance sheet - and the net assets consequently reduced.

I’d argue that CBG’s unwillingness to make a provision is what’s driving the rubbish share price.

And/but they have stated that they’re working to make £400m of capital more or less immediately available - so it’s not unreasonable to use that as “the number”.

Also…

The NAV includes £0.25bn of “intangibles”. Which are just that - you can’t touch them, which makes them hard to sell. Intangibles are generally an accounting construct to make things add up when you’ve bought another company.

Intangibles will also include capitalise spend on IT systems, which aren’t exactly easy to sell. Again, it’s an accounting conceit.

I AGREE THAT IT’S UNDERVALUED.

I actually get the NAV slightly higher manfor...

Total Equity as per page 194 of the annual report is £1.842m, with 150.49m shares. That gives a NAV per share of £12.24 per share.

AND/BUT

Personally, I'd deduct the £266m of intangible assets. That gets the NAV to £10.48 per share.

It's also not unreasonable to knock £400m off for potential compensation. That gets the NAV to £7.82 per share.

For my personal purposes I'd also knock off £150m of the Property, Plant and Equipment £349m on the balance sheet. Which lands you at a NAV of £6.82 per share.

There's no right or wrong here - just how one chooses a "realistic NAV".

I'm not being negative here. I'm an investor here and bought a goodly sized top up this morning when the price fell through my limit order.

That’s a good point manfor. But/and no one would consider a takeover with the ongoing uncertainty over compensation.

“ Well it is likely to stay down a lot longer. Look at the decline in profitability in the last couple of years resulting in a P/E of 30.

Someone tell me what could possibly turn this around?!”

The P/E might be 30, but that’s not giving you the information you think it is.

The headline P/E number is driven by the (IFRS) accounting profit, which doesn’t actually represent the profit made by the organisation. (Dig through my previous posts - you’ll find an explanation there.)

Profitability (as most of us would define it) has been increased in the last few years - although level over the last 12 months. It’s the accounting rules that make it look like profitability has declined.

“Core operating” EPS was 10.58p for H1. If we double that for the year then EPS is 21.16p, which gives a “core operating” P/E of 10.6.

“Jjjzac that is a brave investment all in one go, any reason you didn’t think about drip feeding it in?”

Doesn’t that all depend on the size of one’s drip feeds?

“Phoenix Group Holdings Dividend cover: is only 0.62 and has been decreasing , therefore I see a dividend cut some time soon.”

Dividend cover is a next to useless measure since the introduction of IFRS 14 (mark to market) and IFRS17. The reason is that it’s calculated based on the IFRS profit, which includes the market value of assets that (in most cases) will never be sold at a loss.

That’s why most companies now state their own version of operating profit. Do your own calculations against that and you’ll find the dividend cover is much better.

This was LGEN’s announcement of them buying the the remaining 52.1% of Cala that they didn’t already own - https://group.legalandgeneral.com/en/newsroom/press-releases/legal-general-capital-acquires-full-ownership-of-cala-homes

My post was actually incorrect as I’d assumed their total investment was the equivalent of the £605m valuation at that point.

They actually only paid £75m for their initial stake in 2013 - https://group.legalandgeneral.com/en/newsroom/press-releases/legal-general-housing-growth-boosted-by-record-cala-homes-performance

So, a total investment of £390m. Which makes them tripling their investment in 11 years.

“Down again lol”

My portfolio has 14 reds and 2 blues this morning. The market as a whole is down as I write.

The time to worry is when everything else is blue and this is red.

“Well 11 years by time they receive the full proceeds”

“No mention of payment terms”

£500m now and the remainder over FIVE years (read the RNS for heaven’s sake…).

Admittedly the balance isn’t cash flowed.

They’ve more or less doubled their money on Cala in six years, which is a good result given the macro-economics.

No one, but no one does succinct trading updates like GAW 🤣🤣🤣

"The writing is on the wall. Something to think about."

That'll be the same "writing" that everyone from London was exiting to the shires. Followed by the news that they're now all largely regretting the move becuase of the lack of "facilities" and requirement to be in the office.

All the bankers were leaving for Paris and Frankfurt. Only they didn't all leave. And many of the ones who did have returned.

Very well off friends of mine have left the country for tax reasons, only to return because our education and health systems - as broke as we all like to believe - are actually better "in the round" (to quote one friend).

The reality is that, the wealthier you are, the less tax is a real concern. It's only "plebs" with a few million that pay IHT, etc. Real wealth has the money tied up in trusts and offshore.

Just saying...

"... maybe, ns&I are in the know as they have yet again just reduced their interest rates"

NS&I have the tricky remit. On one hand they aren't allowed to be too competitive to avoid distorting private market rates. On the other hand, they are given cash deposit targets by Government.

NS&I therefore increase rates temporarily to meet cash deposit targets and then reduce them when they're met - to avoid attracting too much cash.

“PHNX does not pay dividends out of IFRS earnings…they pay out of Cash flows, …Also worth noting that relatively recent accounting changes …require[d to] spreading this over time…”

This is crucial to understand.

All insurance companies need to now recognise profits written from a policy over the life of the policy and not up front.

This means that a general insurer, like Admiral, can recognise (more or less) all of your car insurance premium in the year you insure your car. (Technically, 95%(ish) will be recognised over two of their financial years with the remaining 5%(ish) being spread over 5+ years for contingent liabilities. If you have an accident in 2019 that results in a death in 2024 then it’s the company that was the insurer in 2019 that is liable, not the current insurer.)

A life insurance company, like Phoenix, writing an annuity policy against a life expectancy of 27 years now needs to recognise that profit over 27 years.

That “future profit” goes into the CSM (Contractual Service Margin), which life insurers like to call their “store of future profits”.

So, a 27 year policy written this year will have 1/27th of the profit recognised this year and 26/27ths put into the CSM.

Next year, the company will draw down another 1/27th of the profit. At the same time, the company will (hopefully) add more money to the CSM as it writes business.

A key thing to look for is the movement in the CSM.

If it’s positive then the company is adding future profits faster than it’s drawing them down. If it’s negative then it’s drawing down profit faster than it’s topping it up.

The CSM grew by +10%.

The CSM currently stands at £3.134bn (results slide pack slide 17) against total dividends paid of circa £0.5bn (my calculation and probably slightly high).

Not many businesses have 6 years of dividends “in the bank”.

“The only thing I don't understand is the IFRS loss - what ever European accounting feature that is???”

IFRS = International Financial Reporting Standards

International, not European.

Companies are required to revalue assets at market value when preparing financial statements REGARDLESS of whether they have/might/will/might ever dispose of the asset.

An insurer might buy £1bn in 20 year Gilts and intend to hold it to maturity - at which point they will be repaid the £1bn.

But IFRS requires those Gilts to be revalued every time the company prepares results.

So, if those Gilts - sold “today” - would only realise £900m, then the company has to reflect a £100m “loss”. Even though that loss never happened, or will never happen.

The rules are intended to answer the question “what’s the company worth today”, rather than “what’s the underlying value of the company”.

“Let's say that LGEN writes a new annuity policy, with a single premium…”

It doesn’t work like that.

Own funds are just that. Own funds.

The future store of profits is just that.

Go and do some reading ;)

“But what is the £16,500?”

Solvency II “own funds”, whose definition is broadly “capital that could be readily accessed to satisfy immediate obligations.

It’s the number behind the Solvency 2 coverage ratio and provides a good minimum net asset value for an insurer.

The actual NAV is higher, but the benefit of using the “own funds” figure is that there are very strict definitions about what can and can’t be included.