Member Info for Stockpig

Hi @Extasio,

"Unclear and seemingly misleading in the trading statement.. the single million cost estimate is not for the main fca investigation? Sounds to good to be true compared to half year results"

It's not misleading, that is a separate investigation on customer forbearance which is a much smaller one. I think CBG did mention expectation of £10m admin/legal costs for the handling of the current investigation into discretionary commission but not a figure (estimated or otherwise ) on the potential total cost which probably wont be clear until the FCA announce their findings.

Best wishes,

Good set of results again, with a nice jump in the interim dividend.

Simon Litherland is doing and has done a great job at Britvic.

Funny how swingy the share price is for this company, perhaps its no different to other companies in that respect?

"With footfall in town centres dwindling is there any point in continuing with expensive leases or is this part of their strategy?"

I'm sure I have seen them report regularly on their monitoring of the profitability of stores and numbers of closures where those are underperforming. with fewer staff running stores now, it is possible that stores look empty/ closed during day time but are open later to allow for community games nights or painting sessions etc which is probably where stores are still adding value.

"Apologies and I bow to any greater knowledge but I thought L&G although has an excellent growth history on the divi were not in the best place to continue. Divided cover 0.69 and payout ratio 146%??

I'm no genius but if the good people here can explain it would benefit myself and other less learned investors."

Others will be able to explain better but the website you link to basically doesn't capture the earning power of L&G as there has been new accountancy standards introduced which have clouded the reported figures. The new rules change when an insurance company can record a profit (moving away from day one when the policy is written). Basically, the underlying business is profitable and can cover the growing dividend. It also has a large surplus of capital it can turn to as and when needed to fund the dividend.

https://group.legalandgeneral.com/media/cftjqa2g/an-introduction-to-ifrs-17.pdf

"I note that dividends have grown about 5% per year in recent years, but the rate of growth has been much higher in the past. "

I think in the last couple of years particularly there was a deliberate aim to grow dividends by 3-5% while growing earnings 5-10% to strengthen the cover. It wouldn't surprise me to see something like that continue, particularly if inflation falls to around its long term levels and the share price remains around the same levels as an 8-10% yield is already attractive. It might open the door too to the start of a share buy back scheme which the funds seem to be forever calling for. However, the downside to that for those of us still building up our investments is that we will probably see a decline in the yields we are buying as the share price rises.

At first glance this appears to be a shot across the boughs of other companies, not so much CBG who have already suspended their dividend and announced plans for putting together a £400m pot of cash to cover potential costs arising from the FCA decision.

Bruce Packard a former bank analyst has a regular column for Sharepad. This week he covers CBG.

Says the £400m they are putting aside is both sensible and realistic, although it will affect short term profitability as either money is not invested or 'safer' options are pursued with lower returns.

CBG provided range of (6) analysts estimates on potential cost of redress impacting business between 2024 and 2026 of £150m to £350m - average of £271m.

He and his friend who runs a hedge fund don't understand why banks are on the hook for this rather than the car dealers.

Thinks in 18 months CBG could be back to earning 15% ROE with eps of around £1.65, possibly 18.5% ROE business once Winterflood etc start hitting their stride.

He has bought some shares.

"Word of warning to everyone, which has come true again with this thing called DLG.

Divivdend policy was so wrong. Should have been cut in half a long time ago. Any SP thst has a divi above 6% usually ends in disaster, be it gets a nasty haircut, or the SP drops like a plane coming into land. Truth hurts, but it’s a fact."

While investors should always be careful reaching for yield, I don't think that is the issue here - much of the insurance industry are paying higher dividend yields and not having difficulties in doing so - and until last year DlG's dividend was sufficiently covered with the company having enough resources left over to cover improvements to the business.

The problem here was more to do with a series of other misjudgements of varying seriousness (2 £100m share buybacks, repaying a £250m loan both reducing the capital buffer) and a failure to price policies correctly which then left it exposed to the impact from higher inflation, asset write downs and much higher claims than usual it has endured the last couple of years.

"Underperforming the FTSE again as usual. I had been hoping for a bit of a surge, given that all those so called experts keep reminding us that the stock should be trading at 300p plus."

You may very well be right that this may never move to levels many investors here feel would be a fairer reflection of the value of the business. I've only been a holder for about 4 years now so am not too familiar with the share price fluctuation before then, but I feel the price in that time has been one part a hostage to the unpopularity with the sector and 2 parts the complexity of the business itself.

Since 2020 there seems to be some issue that rears its head that is used to knock L&G - paying businesses that closed during covid, fears L&G were too heavily invested in high yield bonds, US banks failing, commercial real estate prices falling, gilt meltdown/ disastrous budget fallout, withdrawal of funds from its asset management business, fears over the growth potential of its main businesses etc.

Yet many of these didn't come to pass and the business still goes on from strength to strength.

"The comment was that the Ageas CEO would look “wet” if he didn’t come back for a final go at it. "

Reminds me a little of what happened at Unilever when the CEO went after the part of GSK that is now Haleon, shareholders baulked at the price and he stepped down shortly after.

On the other hand if he does launch a higher bid at that 2.50-2.60 level that is successful does he get plaudits for bagging DLG below the 2.75-3.00 mark first speculated as being the cost.

"however management needs to change. The dividend reset is not great 4p final maybe 8p next year - seems to erode the reason many held this for so long."

Management has changed. More will no doubt follow as part of the cost cutting.

Insurance should be conservative and boring. PJs failure was in not keeping to this and we are only now seeing the full impact this has wrought.

I consider the dividend messaging to be part kitchen sinking and part a signal that management are returning to more conservative values. Expecting the dividend to return to similar rates so quickly probably a bit too hopeful.

Wouldn't surprise me if we start seeing more positivity from July onwards and more clarity around medium to long term plans for dividend, special dividends and share buybacks at the capital markets event planned for then.

"I don't believe that Ageas will walk away, as the actual results are just short of analyst consensus, so no big surprise to Ageas. The miss might well tempt them to make a third offer."

I think it is quite likely that Ageas had a good idea as to the sort of results DLG would be releasing today and why they went with the bid the way they did probably hoping that the board would open negotiations or commit to a price they would accept. I don't see DLG being anymore eager to agree to a takeover now than they would have 2 months ago, particularly with a new man in charge who probably feels the company has now turned the corner.

"That will change in time. Wait till interest rates fall."

Given the sizeable yield already on offer, I wonder if any funds raised from the sale of Cala Group, if it does go ahead, will be used to begin a share buyback. At current prices that could buy about 5% of the company and may push the price up (given how often brokers ahead of result updates call for the company to do buybacks.)

"Maybe not directly comparable to DLG, but seemingly very good results from Sabre this morning including a special dividend on the back of 'very strong market-wide price correction' and driven mainly by 47.5 per cent premium growth in its motor vehicle product.

I wonder if DLG will be similar or if they still have their foot in their mouth ?"

DLG were late to the party in re-pricing, so bounce back maybe tempered.

On the flip side, hopefully no more horror stories, such as the commercial property write downs, weather related claims increases or payouts over prior mistreatment cases etc

"https://www.cityam.com/belgians-tap-up-chinese-ahead-of-possible-third-bid-for-direct-line/"

I thought I had recently read that Fosun were looking to sell their holding to help shore up their own finances. If so, I wonder how that affects these talks.

"Most bidders to seem to walk away once a reasonable premium is offered and not accepted. Curry, DLG, ELM all too greedy and no one want to pay stupid level for these poorly run companies. Some CEOs accepted the offers and managed attract more higher offers because knew the CEOs of those companies are serious of offers and shown respect."

I think there are reasons to think that the bid did undervalue DLG. It will take a couple of years for the unprofitable policy writing to work its way through the system. They are now writing with a much better margin, that probably wont be fully reflected in the figures for another year or so. Inflation is falling, interest rates will also start coming down soon so the value of assets they hold will likely increase again. There will be steps being taken to reduce running costs.

"Would Mr Winslow have taken the job on if he didn't think it could be sorted?"

Is there likely to be much that needs sorting? As far as I understand the issues DLG face are

long term - its higher cost base compared to peers.

Short term - failure of CEO/Board to anticipate perfect storm - Brexit, Covid, Ukr/Russia war shocks and react more conservatively sooner both in pricing and paying out to share holders after they hit.

The higher cost base was highlighted as an issue by James before stepping down, so it's likely work has already been done to begin tackling that.

As for the short-term issues - The CEO stepped down and policies have since been written to better reflect inflation. The latter takes time to feed through.

"On it's way sub £2 - still the BoD say they can do better. Let's see.

Revealed: One of the largest shareholders in Ageas, the Belgian insurer, believes its pursuit of London-listed Direct Line Group is “aggressive and opportunistic” and should be abandoned, in a fresh blow to the prospects for a deal."

Would love to know what was meant by "aggressive". It certainly looked opportunistic and halfhearted. The second bid is a real headscratcher though....