Shares in retirement solutions provider Just Group (JUST) climbed 5% to 100p after the firm revealed it had reached its goal of achieving capital self-sufficiency a year earlier than hoped, despite the impact of the pandemic.
SELF SUFFICIENT
In the year to December, the firm generated underlying organic capital of £18 million thanks to ‘reduced business strain’ (lower costs for taking on new customers) and improved in-force surplus generation, compared with a deficit of £15 million in 2019.
The result was ahead of market expectations of a £1 million deficit as well as a year ahead of management’s target of the end of this year, and puts Just Group in a position to take advantage of growth opportunities without having to tap the debt markets or shareholders for cash.
Chief executive David Richardson was understandably pleased with the result, but resisted the temptation 'to pat ourselves on the back’.
‘There is no shortage of growth opportunities in either the defined benefit or the retail market, but our aim is to continue growing our capital surplus while at the same time looking for attractive growth opportunities’, said Richardson.
For 2020, retirement income sales were up a solid 12% to £2.1 billion driven by a 22% increase in defined benefit de-risking sales to £1.5 billion.
At the same time the firm continued to ‘de-risk’ its own balance sheet with the sale of a £540 million portfolio of lifetime mortgages, reducing its exposure to the UK residential property market.
ANALYSTS’ VIEWS
Numis analyst Nick Johnson maintained his buy recommendation and 160p share-price target, highlighting the firm’s ‘significant capital progress’ over the last year and predicting ‘modest upgrades to consensus capital ratio forecasts, which should be positive for driving further improvement in the valuation.’
Shore Capital analyst Alan Devlin, who also has a buy recommendation, pointed to the fact Just Group’s shares - which have doubled since we recommended them last August - are still only valued at half the firm’s tangible book value due to capital concerns. ‘Today’s results will help to continue to build confidence in the firm’s capital position’, he added.
