Revitalise your funds as Phoenix revives pensions
PHOENIX Group staff are in luck. Later this week, thousands of them will receive an extra £1,000 in their pay cheque to help them cope with soaring food and energy prices. All 8,000 employees are eligible – except for the 100 most senior staff. Workers are also being offered free meals in the office and subsidised car parking.
Phoenix is not a charity or nonprofit quango. It is the UK’s largest savings and pensions business, valued on the stock market at nearly £6.8billion and part of the FTSE100 index. But chief executive Andy Briggs believes that treating staff well results in better customer service, which in turn makes the company stronger and better able to reward its shareholders.
The virtuous circle seems to be producing results. Phoenix announced robust half-year figures last week, the company is generating mountains of cash and Briggs is confident about the future.
He is also focused on dividend growth. Phoenix has maintained or increased payments every year for the past decade and should continue in that vein this year and beyond. Last week, the company announced a 3 per cent increase in the interim dividend to 24.8p and brokers expect a 3.6 per cent uplift in the total payment to 50.7p for 2022. With the shares at £6.61, the stock is now yielding more than 7.5 per cent, with further growth pencilled in for 2023 and 2024. Such yields would be attractive in any environment but, with inflation soaring and the economy suffering, Phoenix dividends look particularly enticing.
The company’s generosity reflects its unusual business model. Phoenix started out buying life assurance companies that were closed to new members. Most life assurers spend huge sums of money trying to attract new customers. Phoenix does not need to with these closed books of business – it can concentrate on delivering good service to existing customers instead.
Across the UK, closed life businesses have around £480billion of assets, comprising millions of policies managed by a range of insurance firms. Phoenix is the largest operator in this sector administering £125 billion of assets, but Briggs is still keen to buy more firms.
Only this month, he snapped up the closed book life assurer Sun Life for £248million and he is constantly on the lookout for more deals. Phoenix also operates in the more conventional savings arena, primarily through the acquisition of Standard Life Aberdeen’s insurance arm in 2018. Briggs has since invested substantially in the business, making it more efficient and improving customer service. Those investments are paying off. Now known as Standard Life, this division has been winning customers in several areas, acquiring entire pension schemes from companies, offering new workplace pensions to other firms and providing individual savings products too.
Overall, Phoenix has 13 million customers with just under £270 billion of assets between them. Unlike peers however, Phoenix does not offer general insurance – cars, homes, commercial and such like.
It is almost entirely based in the UK and it does not manage funds itself, outsourcing that work to around ten specialist investment managers instead.
These managers are under strict instruction to invest assets in such a way that they deliver predictable returns so that customers and shareholders benefit. Phoenix also hedges its business against inflation so, at last week’s results, the group was able to say that current inflationary pressures will have no material financial impact on its performance.
The statement fits well with the Phoenix mantra, centred on cash, resilience and growth. The company has calculated that, even if it made no future acquisitions, its businesses would generate around £17billion of cash over the coming years. Even after expenses and other commitments, almost £12billion will be available to pay out dividends and invest in future growth. This year alone, Briggs expects to end up with £1.4billion of cash, with similar figures pencilled in for 2023 and 2024.
Expanding the company, through acquisitions and organic growth, should ensure that cash generation remains strong and dividend payments continue to rise.