Could Heavyweights Old Mutual Plc, Standard Life Plc & St James’s Place Plc Boost Your Portfolio In 2016?

My take on heavyweights Old Mutual Plc (LON:OML), Standard Life Plc (LON: SL) & St James’s Place Plc (LON: STJ).

| More on:

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.

With Old Mutual’s (LSE: OML) break up plans having brought insurers and asset managers back into the spotlight for the day I thought I would take this morning to look at the future prospects of some of London’s heavyweight insurers and asset managers.  

Reasonable store of value

The last few quarters have been less than kind to Old Mutual shares, with shareholder returns failing to meet investor expectations in 2014 and throughout much of 2015. This followed a period where, according to management, the complex structure of the group has lead investors to persistently under-value the shares, prompting the announcement of a break up of the company this morning.

The  ‘Managed Separation Plan’ will see Old Mutual reduce its majority stakes in publicly traded Nedbank and OM Asset Management, with management also considering a possible flotation of the wealth management and emerging markets businesses as well.

A mixed reaction from the market and a lack of detail makes forecasting difficult at present, although the Morningstar consensus still implies modest earnings growth ahead and that dividends will remain above 9.5 p per share (a yield of 5%) through to 2018.

When taking into account a ‘lower for longer’ interest rate environment and the prospect of additional capital returns as the break-up progresses, in addition to an unconstrained balance sheet and the recent under-performance of the shares, Old Mutual could still prove a reasonable store of value for investors.

A riskier prospect

With the bottom having fallen out of the UK annuities market during 2015, a subsequent raft of downgrades to earnings projections in the broking world have driven Standard Life (LSE: SL) shares back to 2012 levels, bringing losses so far in 2016 to 7.29%.

The shares are projected to offer a dividend yield of 5.5% in 2016 and the balance sheet remains in good health. However, dividend cover at just 1.3x is low, while further rate increases from the Federal Reserve could mean that Standard Life experiences some losses in the longer-dated bond portfolios that comprise a meaningful portion of assets under management for the life business.

This means that the shares probably aren’t the greatest idea for risk averse investors although, if the group is able to throw sand into the eyes of doubters when it releases first half results in August, investors could benefit from capital appreciation as the shares begin to recover lost ground.

Positioning for growth

St James’s Place (LSE: STJ) has performed strongly since the financial crisis, with the shares up more than 500% in the years since, as strong growth in assets under management and stable margins have driven a consistent expansion of earnings during recent years.

St James’s has been investing considerably in an international expansion for some time now, with emerging markets such as Hong Kong and Singapore now providing attractive growth opportunities for the future.

Looking ahead St James’s Place should continue to benefit from ‘lower for longer’ interest rates and the consequent demand for its services among private investors, given the sub-par returns available from traditional assets such as cash and simple fixed income securities.

The shares are down so far this year, like many others in the wealth management arena, while dividend cover is hovering around the 1.0x level according to the Morningstar consensus for earnings per share and dividends per share over the next two years.

This means that the shares could be risky for those who value a stable income stream. But a reasonable outlook for earnings growth could still bode well for capital appreciation over the coming quarters.

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.

More on Investing Articles

Investing Articles

Here’s the best-performing FTSE 100 stock of the last 10 years

Private equity firm 3i has outperformed the rest of the FTSE 100 over the last 10 years. And its big…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

Here’s why Warren Buffett is selling shares (and why I’m not)

Warren Buffett cited tax considerations as his reason for selling shares in Apple. But this isn’t something most UK investors…

Read more »

Investing Articles

What on earth is going on with the AstraZeneca share price?

The AstraZeneca share price has fallen 30% from its peak in August. Dr James Fox explains what’s going on with…

Read more »

Investing Articles

2 high-yield FTSE 100 shares I’d consider buying for passive income…and one I’d avoid

Some FTSE 100 stocks have eye-popping dividend yields. But will the passive income actually be dished out? Paul Summers takes…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

These 2 former stock market darlings are trying my patience! Time to sell?

Harvey Jones thought he was getting a bargain when he snapped up these too much-loved FTSE 100 dividend growth stocks.…

Read more »

Investing Articles

Here’s how I’d use £3,000 to target a second income that grows each year

Our writer explains the approach he'd take to trying to build a second income that gets bigger over time, by…

Read more »

Elevated view over city of London skyline
Investing Articles

Is it time to buy this incredible FTSE dividend share?

Christopher Ruane examines one FTSE 100 share with a phenomenal dividend history. Does a steep share price fall this year…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

This FTSE 100 share has just crashed another 20%. Its P/E is now just 9.9 so should I buy?

Harvey Jones was tempted to buy this FTSE 100 share after it crashed in October. Now it's crashed again, it…

Read more »