FTSE insurer Phoenix Group Holdings (LSE: PHNX) closed 9% higher on 22 March after releasing strong 2023 results.
Even though yields fall as share prices rise, a dividend increase alongside its results means it is still giving a 10% return. It is one of the very few FTSE 100 stocks that give such a high payout on money invested in it.
The stock only appeared on my radar screen last March, as financial stocks tumbled on fears of a new crisis.
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I hadn’t realised that the 10%-yielding company operated the giant insurance brands Standard Life and SunLife.
I bought the shares then, and despite their recent price spike I’m considering buying more now.
I’m not unduly bothered about buying stocks that have risen sharply in price. My only proviso is that they still offer significant value.
The core business is growing stronger
Its 2023 saw a 13% year-on-year rise in IFRS-adjusted operating profit before tax — to £617m.
This was driven by a 27% increase in its Pension and Savings business. New business net fund flows also jumped – by 72% year on year to £6.7bn.
Its post-tax IFRS-adjusted loss was £88m, compared to £245m the year before. This 64% reduction was the result of improved hedging of its capital position in less volatile markets.
A reversal of this positive trend remains a risk for the stock. Another is a new global financial crisis.
Both these are mitigated in my view by the huge cash pile built by the firm.
This totalled just over £2bn in 2023, exceeding its already-upgraded target of £1.8bn. New business long-term cash generation was just over £1.5bn, achieving its 2025 target two years early.
This huge cash war chest means the company should be able to keep paying high dividends with ease. It can also be a major driver for growth going forward.
The firm now expects operating cash generation to rise by around 25% to £1.4bn in 2026. It is also targeting a £900m IFRS-adjusted operating profit by that year.
Consensus analysts’ expectations are for earnings to grow 47% a year to end-2026. Earnings per share are also expected to increase 57% a year to that point.
Is there still value in the shares?
Just because a stock has risen in price, doesn’t mean it has no value left. It may simply be that the company is worth more than it was before. In fact, it might be worth even more than the current share price reflects.
On the key price-to-book (P/B) measurement of stock value, it trades at just 1.8. This looks very good value compared to the peer group average of 3.7.
The same can be said for its key price-to-sales (P/S) measurement as well. Phoenix Group currently trades at a P/S of just 0.3 – the lowest in its peer group, the average of which is 1.5.
On both key measures there looks to be significant value left in the stock, despite the price rise.
Will I buy more?
I will be buying more Phoenix Group shares very shortly for three key reasons.
First, the business looks to me like it is going from strength to strength. Second, the shares still look very undervalued against their peers. And third, the yield is just impossible for me to pass up.
