What Will The Merger Of Just Retirement Group plc And Partnership Assurance Group plc Mean For Investors?

Just Retirement Group plc (LON:JRG) and Partnership Assurance Group plc (LON:PA) today announced an all-share merger.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The boards of Just Retirement Group (LSE: JRG) and Partnership Assurance Group (LSE: PA) have reached an agreement to an all-share merger. Shareholders in Just Retirement will hold about 60% of the combined group, with shareholders in Partnership Assurance holding the remainder. Each Partnership share will be entitled to receive 0.834 new Just Retirement shares, which implies a 7.6% premium on Partnership’s yesterday closing price of 154.25 pence.

The markets initially reacted positively to the news. Partnership shares reached 170 pence (up 10.2%), before falling back to 159.75 pence (up 3.6%) by early afternoon. Shares in Just Retirement initially rose to a high of 207.1 pence, but fell into negative territory later on. At the time of writing, its shares were 2.8% lower, at 192.1 pence.

Annuity sales recovering more strongly than expected

Partnership also announced its interim results today, which showed new business premiums recovering much more strongly in the second quarter of 2015 than many analysts had expected. New business premiums in Q2 were a third higher than in Q1, at £132 million. But, compared to last year, new business premiums in the first half of 2015 were 43.5% lower.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

The drop in individual annuity sales, as pensioners no longer need to purchase annuities following the implementation of the new pension reforms, underscores the necessity for consolidation in the industry. The combined group is expected to benefit from annual cost savings worth £40 million by 2018, and these synergies are expected to have a positive impact on margins, embedded value and capital ratios over time.

Once the merger has been completed, the combined group intends to raise £150 million worth of additional equity. This will be used to fund the integration process and support future business growth. Just Retirement is seeing strong growth in defined benefit sales and is adapting to legislative changes, through the launch of flexible retirement funds.

Although the merger almost certainly seems to be positive for both companies, it will be no panacea. Annuity sales will mostly likely remain subdued and growth in a shrinking market will be difficult. The combined group is said to benefit from substantial synergies, but both companies have already become much leaner on their own, and further cost savings may seem harder to come by.

Valuations

Both companies seem expensive on an underlying earnings basis, but this is because underlying earnings is more heavily affected by the reduction of new business.

Before today’s announcement, analysts had expected Just Retirement would deliver underlying EPS of just 10.1 pence, after a fall of 38% in 2015. This gives its shares a forward P/E of 19.5. Partnership is similarly overvalued on a forward P/E basis. Its shares have a forward P/E of 18.2, on analysts’ expectation of underlying EPS of 8.5 pence.

On an embedded value basis, valuations are attractive. Embedded value is commonly referred to as the run-off (or liquidation) valuation, as it does not place any value on new business that may be gained in the future. This valuation method is usually better at valuing life insurance companies, as it measures the future cash flows of the company over the long term. As the time of writing, Just Retirement and Partnership are valued at 0.96x and 1.05x their respective embedded values.

As the combined market capitalisation of the two companies trade at virtually no premium to their combined embedded values, the market is not placing any value on their future annuity sales. With future business effectively valued at zero and potential gains from further cost savings, the valuation of the combined group is cheap.

This AI stock is attracting investors like Michael Bloomberg and Peter Thiel…

Why are these legendary investors, already wealthy beyond imagination, drawn to this opportunity? The allure lies in more than just potential returns; it's a vote of confidence in a company poised for long-term success.

Imagine a revolutionary AI company that's not just participating in the digital media landscape but reshaping it entirely.

Trusted by giants like Amazon, Disney, and Netflix, the company reported nearly £637 million in revenue last year, marking a robust 7.8% growth over three years. Its impressive market reach and spirit of innovation are just the beginning of its story.

Best of all, we’re thrilled to offer you an exclusive glimpse into this game-changing AI investment, absolutely free.

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Fundsmith Equity still a good choice for a Stocks and Shares ISA in 2025?

Many Britons hold the Fundsmith Equity fund in their Stocks and Shares ISAs. Is this still a good move? Edward…

Read more »

Investing Articles

Nvidia stock is down 24% this year. Time to buy the dip?

Christopher Ruane has been eyeing Nvidia stock as a potential addition to his portfolio for a while. Is a recent…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »

Investing Articles

Prediction: Unilever to outperform the FTSE 100 over the next 12 months

The FTSE 100 has made a strong start to 2025, but Stephen Wright thinks a popular dividend stock could be…

Read more »

Investing Articles

I just bought this legendary S&P 500 tech stock for my ISA, 27% off its highs

This S&P 500 stock has tanked over the last month and Edward Sheldon has snapped it up for his portfolio…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 beaten-down stocks to consider for an ISA after the massive market sell-off!

The stock market has had a sudden meltdown! Yet our writer thinks these two growth stocks look attractive candidates for…

Read more »

British Pennies on a Pound Note
Investing Articles

I asked ChatGPT what the best UK penny stock was. This is what it said…

Can AI find winning penny stock investments? Zaven Boyrazian puts ChatGPT to the test and discovers a potentially interesting opportunity.

Read more »

Investing Articles

These FTSE 100 stocks could be the winners from Trump’s tariffs!

President Trump’s unpopular tariffs caused mayhem on the world’s stock markets this week. But some FTSE 100 stocks bucked this…

Read more »