Employee benefits provider Personal’s (PGH:AIM) investment in its sales infrastructure, including the increasing use of digital sales aides, and spate of big contract wins are laying the foundations for future growth.

The Milton Keynes-based group, which provides healthcare, death benefits and income protection plans to more than 1.2 million people in some 400 companies, has been using iPads since the final quarter of 2012 when presenting to employees and processing applications. The initiative has succeeded in its twin objectives of increasing sales and reducing costs.

The first-half conversion rate increased markedly to 55% of those enrolling on the company’s programmes compared to 49% in the whole of 2012. The average daily annualised premium issued (API) per sales executive also increased to £1,095 during the period from £952 in 2012. Meanwhile, automated sign-up via the iPad reduced the acquisition cost of each £100 worth of API to £80 from £84 in 2012.

Instant success

Personal celebrated a record first half generating £4.9 million of annualised new business premium in the six months to July, up from £4.1 million in the same period in 2012, a 21% rise. The group, which includes TNT, 3663, Northumbrian Water, Stagecoach (SGC) and River Island among its clients, also recorded a healthy 68% combined ratio at the end of 2012, being the difference between claims and premiums.

The sales infrastructure renewal has coincided with the firm winning significant new business. In May Personal snared one of its largest contracts since the firm was established in 1984, when it secured the tender to provide employee benefits to Network Rail’s 35,000 staff. Then in October it added 2 Sisters Food’s 24,000 employees to its portfolio on a voluntary benefits programme.

Further new business could be on the way. The group had cash of £16 million at the half-way stage with no debt so management has the financial flexibility to invest further in the business to drive organic growth and make acquisitions, should the right opportunity present itself. But investors should not expect this growth to be reflected in the profit and loss account for a little while.

Revising the figures

The firm’s pre-tax profits are expected to be flat this year at around £8.3 million as higher levels of new business result in a higher claims ratio in the early months. The first-half claims ratio was up 4.9% to 25.6%. But as the claims ratio normalises in 2014 profits should progress handsomely to £9 million, again according to forecasts from house broker Cenkos.

Cenkos has trimmed its earnings per share (EPS) forecasts for 2013, to 21p from 22.6p and to 23p from 25.1p for 2014. But, thanks to the cash-generative nature of the business, dividend forecasts are unchanged with a total of 18.6p expected this year, equivalent to a 4.5% yield, rising to 19.2p in 2014. Dividend cover of 1.1 and 1.2 may appear slim but the company’s high-quality and visible earnings streams allow for a high pay-out ratio.

Personal (PGH: AIM) 417.0p BUY

Stop loss: 333.6p

Market value: £124.3 million

Prospective PE Dec 2013: 19.7

Prospective PE Dec 2014: 18.0

1-month relative strength: -3.1%

1-year relative strength: +3.4%

Prospective dividend yield: 4.5%

Bid/offer spread: 2.69%

Growth: HIGH

The Government wants more people to take financial responsibility for themselves in tough times. Personal helps facilitate this.

Risk: LOW

Personal has won large tenders as the economy starts to pick up as people look for health and income protection.

Quality: HIGH

The company has a healthy combined ratio and through its infrastructure investment will see margins squeezed further.