Interactive Investor

The Insider: City deals uncovered

28th August 2014 13:47

Lee Wild from interactive investor

Boss backs Partnership Assurance

Chancellor George Osborne's budget in March knocked the stuffing out of Britain's annuities industry - enhanced annuity specialist Partnership Assurance Group suffered more than most. Scrapping the compulsory purchase of annuities by anyone with defined contribution pensions halved its value within hours. Admittedly, the outlook still isn't great, but chief executive Steve Groves is confident enough to spend over £100,000 on shares.

Certainly, Partnership shares have never been so cheap. The company floated less than fifteen months ago at 385p, valuing the business at a lofty £1.8 billion, but Groves paid just 117p for each of the 100,000 shares he bought recently. He now owns over 9.6 million of them, or 2.4% of the business, worth over £10 million, plus options over 1.54 million more. But Groves has deep pockets, having trousered £12 million by selling down his stake through the IPO.

But is it worth following the wealthy chief executive? Well, retirement annuities - Partnership's biggest profit generator - had already slumped before the Budget shock, down by over a quarter during the final three months of 2013. And half-year results published mid-August bore the scars of the Budget Day massacre, with operating profit down 44% at £33 million. New business profit more than halved to £17.8 million as volumes slumped.

Partnership is slashing costs - £21 million of annualised savings have already been identified - and maintaining pricing discipline, too, but admits that margins will likely fall further in the second half. Potential customers clearly want a look at new regulations due alongside the annuity changes next year before committing to alternative products. That could mean a long period of inactivity, while other opportunities under discussion will take time to put together.

This justifies some kind of discount to peers, although Bank of America Merrill Lynch reckons the gap between Partnership on a forward price/earnings (PE) ratio of less than 10 and the UK life sector on 12 "may close slightly." The shares trade at a 14% discount to embedded value of 136p, too, although on the face of it there seems little reason to rush in here.

Toast to SABMiller

Shares in SABMiller, the world's second-largest brewer, have risen by a quarter over the past six months to 3,320p. Directors clearly have a taste for investing, and have been regular buyers on the way up.

No wonder. The Miller, Grolsch and Peroni firm, recently touted as a merger partner for Diageo, grew organic revenue by 6% in the first quarter to June as volume rose by 3%. That keeps the business in line to meet full-year expectations, with growth in Africa, South Africa and Europe easily offsetting a slowdown in North America. And chairman John Manser, who hands over to current Rio Tinto chairman Jan du Plessis after the AGM in July next year, has just topped up his stake with another 3,000 SABMiller shares worth almost £100,000.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.