AT FIRST glance, the first set of annual results since David Nish took the helm look good. Operating profit on a European Enterprise Value (EEV) fell just 1.5 per cent to £919m, around 39 per cent ahead of consensus.
But profits were boosted by changes in asset allocation and hedging arrangements – not better performance. Variances in “tax and other” added £266m to profit, compared to consensus of £79m.
More worryingly, 95 per cent of pre-tax operating profits were earned from life assurance and pension products, which are exposed to mature, slow-growing markets. The UK accounts for 55 per cent of sales, followed by Canada (21 per cent) and Europe (three per cent).
Shares are cheap – its price to enterprise value is just 0.74 per cent, compared to the European insurance peer average of 1.08 per cent. Those looking for steady income will be cheered by the six per cent yield, but this is not a stock that’s going places. Investors that want a high-growth insurer should switch to Prudential.