Chesnara plc (LON:CSN) is the topic of conversation when Hardman & Co’s Financial Analyst Dr Brian Moretta caught up with DirectorsTalk for an exclusive interview.
Q1: Chesnara recently announced its 2023 results. What were the main features?
A1: Their 2023 results showcased a robust Economic Value profit of £59 million, a notable recovery from the £85 million loss in 2022, and included £28 million from acquisitions. Despite dividend payouts and some adverse exchange rate movements, Economic Value saw a 2% increase to £524.7 million.
The final dividend was uplifted by 3% to 15.61p per share, reflecting solid cash generation of £32.5 million and commercial cash generation of £53 million.
Q2: What were the main factors driving the improvement in Economic Value?
A2: Healthy equity market returns, especially from Sweden, had a strong positive impact on the results. Rising interest rates were also a net positive, although the position in each country varied, and widening credit spreads were a drag. We also saw a much-improved operating performance, as well as the beneficial effect of acquisitions.
Q3: Can you tell me more about the operational improvements compared with 2022?
A3: The operational improvements in 2023, relative to 2022, are quite notable, especially in Sweden. Previously, the company experienced challenges, particularly with lapses due to legislative changes and irrational competitor pricing. However, an improvement was observed in the second half of 2022, which continued into 2023. Lapses were slightly worse than expected in Sweden but significantly better than the previous year. Other countries also had areas that were better than expected.
Q4: Chesnara has placed a greater emphasis on acquisitions recently, what news is there in that area?
A4: There was limited news on acquisitions. Although they have more than kicked the tyres on several possible deals, only Canada Life was announced in 2023. Although the lack of more acquisitions is frustrating, we are reassured that management is not doing deals for the sake of them and is focused on finding the right ones.
The main incremental news to investors was the completion of the Part VII transfer of Sanlam, this will allow the full realisation of operational and capital synergies.
Q5: Many investors hold this for the yield, can you tell us more about cash generation and the dividend?
A5: The final dividend was in line with expectations and was a 3% increase over the previous year.
With strong equity markets, the symmetric adjustment reduced the cash generation this year. Base cash generation was still a healthy £33 million. A couple of further actions improved the capital position, including an extension of the currency hedge, which helped 2023 results, and the addition of mass lapse reinsurance. The latter is seen as having an attractive capital benefit relative to the cost and gives an idea of how management may look at further improvements in the future.
