what NL was saying! lol16 Feb 2011 18:14
Resolution was the day's biggest riser in the FTSE 100, helping push the leading index close to the 6100 level.
Shares in the acquisitive insurance group led by Clive Cowdery climbed 16.6p to 280.6p after Redburn Partners began coverage with a buy recommendation and a sum-of-the-parts valuation of 483p a share. Analyst Lance Burbidge said Resolution - which has already bought Friends Provident, Axa UK and Bupa Health Assurance - could afford to pay up to £2bn for a further acquisition, funded by increased debt and the possible sale of a business such as Lombard, which specialises in high net worth individuals and is valued at around £440m. But with investors reluctant to support a rights issue, larger targets such as Legal and General or Prudential's UK businesses were unlikely. More plausible targets were Zurich UK, Old Mutual UK, St James's Place and Canada Life UK. Burbidge said:
The original timetable set out by management suggested acquisitions for the UK life project would be completed within an 18-month time horizon (i.e. mid-2011) and we anticipate a reiteration of this goal at the strategy update [on February 23]. We believe that acquisitions in the £1bn-£2bn range are most likely given our estimate of additional debt capacity and an expectation that share issuance would be minimised.
The complexity of Resolution's structure and a lack of consolidated reporting overshadow a business with high levels of sustainable capital generation. It is our view that once acquisitions are complete by mid-2011 management can focus on integration, capital extraction and demonstrating that the business is currently severely undervalued. Our valuation suggests 80% upside to fair value and we therefore recommend buying the shares.
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