Chesnara plc (LON:CSN) is the topic of conversation when Hardman and Co’s Financial Analyst Dr Brian Moretta caught up with DirectorsTalk for an exclusive interview.
Q1: Chesnara recently announced its 2022 results. What were the main features?
A1: There were two sides to the results. As listeners will be well aware, both stock markets and credit markets were weak in 2022. This had a strong impact on the company’s Economic Value, and it suffered a loss of £106.1 million. The balance sheet Economic Value per share decreased from 416p to 340p at the year-end, with a small subsequent uplift from the Conservatix deal closing in January 2023.
Q2: What was the other side to the results?
A2: The other side is that cash generation was strong. Base cash generation was £82.7 million, over four times the 2021 figure. While £36 million of this came from capital release due to a new currency hedge that will reduce the group’s exposure to fluctuations in the value of its overseas operations, the underlying generation was still excellent.
Given that, a couple of years ago, an analyst was worried about the sustainability of the dividend, these results should finally put that concern to bed.
Q3: You mentioned the dividend. What was the news on that?
A3: As we expected, the proposed final dividend was a 3% increase on the 2021 figure. This gives a total for the year pf 23.28p and a prospective yield (depending on where the share price is) of circa 8%. The attractions to those seeking income are clear.
Q4: What news was there about operations?
A4: I think the main operation news was in Sweden and in Scildon in the Netherlands.
In the former, a combination of legislative changes and an overly aggressive competitor has led to a period of increased lapses. The competitor has now returned to more rational pricing, and the lapse rate has returned to where it was previously. Scildon, unfortunately, saw some operational challenges, particularly IT, and increased mortality reserving.
We’re confident that management can get to grips with the former and should see an improvement in 2023.
Q5: Chesnara has indicated an increased interest in acquisitions, was there any news there?
A5: The three deals announced in the past 18 months have now all completed.
Robein Leven, which was the smallest deal, is fully integrated into Waard, the company’s closed subsidiary in the Netherlands.
Conservatrix completed in January, and the policies have been moved across to Waard’s systems.
Sanlam in the UK has been operationally integrated, but still needs to go through court approval process to finalise the full transfer.
So, operationally, the company is ready to do more deals today. Recent market volatility will have mixed effects on targets, with some more likely to sell as a consequence, but others may want to wait. While the timing is impossible to predict, they have increased its M&A team, has capital to invest, and is ready to move when something does come along.
