Sampo is rapidly implementing deep changes to its business mix and strategic orientations. The insurer has sold Nordea’s shares for €1,174m, has acquired a Non-Life British company (Hastings Group) and reduced its financial leverage through debt repurchases. 2020 is the perfect year to book losses and to prepare for a more dynamic future. We expect corporate operations outside the Nordic region, focused on the preferred P&C segment.
Companies: Sampo Oyj Class A
Sampo posted H1 20 earnings reaching €569m, -42% yoy. The decline came from the investment side, while the insurance business showed high resilience. The group’s solvency ratio stood at 187%. The insurer has also confirmed its intention to acquire 70% of Hastings Group Holdings with the South African RMI through a newly-formed jointly-owned company. The size of the Sampo’s investment should be €1.29bn, of which €1bn funded by newly-issued hybrid Tier 2 capital. Our estimates will be improved.
The Finnish insurance group Sampo is exploring an entry into the UK market with a potential bid for the Non-Life insurer Hastings Group Holdings. The operation is being prepared with Hastings’s biggest shareholder, Rand Merchant Investment Holdings. Through such an acquisition, Sampo will be able to diversify its earnings, currently coming exclusively from the Nordic countries, and boost its growth. This is also a sign that the impact of the pandemic on its figures is lower than expected.
Sampo announced a Q1 20 pre-tax profit of €162m, -65.9% yoy. Mandatum Life recorded a loss of €-16m, while If P&C was resilient but its earnings declined by 34.8% to €129m. The impact of COVID-19 was significant on claims but revenues recorded growth. To preserve its capital position, the Board decided to propose a lower dividend for shareholders, at €1.5/share vs. €2.2 initially. This will allow a Solvency II ratio of 187% to be reached by the end of April 2020.
A calm end pf the year for Sampo. The insurer posted an annual profit before tax of €1,541m, -26% yoy and broadly in line with estimates. The revised dividend strategy, with higher payout ratio at 70%, does not mean higher cash for shareholders. It is the way to rebalance the decrease in net profit with a lower contribution from Nordea. Now, the dividend distribution capacity depends on If P&C. A situation comparable to the pre-2015 period.
Sampo has posted a 9M 17 profit before tax of €1,073m, down 35% yoy (€92m in Q3 19, -81% relative to Q3 18). This decline is caused by the low interest rates that affected the performance of Nordea and Topdanmark. Mandatum Life’s figures should be adjusted by the exceptional €197m contribution from the cooperation agreement with Danske Bank in 2018. The insurer will be less generous with its shareholders in 2019. Our model will be revised down.
A positive set of H1 19 figures. The company performed well in both the Life and P&C businesses, which recorded respective pre-tax earnings of €137m and €440m. The performance of the Life branch needs to be seen within the context of a €197m exceptional in the H1 18 coming from the cooperation agreement with Danske Bank. We have recently adjusted our model to factor in a lower dividend stream from Nordea. No significant change is expected in our positive opinion.
Sampo will distribute one Nordea share for each ten Sampo shares held as an extra dividend. This decision aims to decrease the insurer’s stake in the bank below 20% to benefit from more favourable regulation in terms of the Solvency II. This move will not have a significant impact on the internal dividend stream and Sampo would be able to distribute a strong dividend.
Sampo repoted a Q1 19 profit before tax of €475m, up 6.7% yoy. P&C’s pre-tax profit increased by 2.6% to €198m, while the Life business posted a pre-tax profit of €72m. The Solvency ratio declined to 130%, hit by higher capital requirements on Nordea. The bank’s contribution to earnings dropped significantly to €83m. However, Topdanmark’s exceeded 19%. Sampo announced that it would make a decision concerning its capital position before the end of the year. Our model will be refined.
Sampo posted an annual profit before tax of €2,094m (-15.6% yoy). If we take into consideration the FY 17 non-recurring item of €706m, the pre-tax profit recorded a 17.9% increase. The insurer succeeded in offering a more balanced earnings structure, with a lower contribution from the If P&C arm. The dividend stream from Nordea and Topdanmark is estimated at €677m in 2019. We appreciate the insurer’s performance and our estimates will be revised up.
Sampo posted a 9M adjusted profit before tax of €1,643m. All business lines posted growth. The profitability of the Life business remains extremely sensitive to interest rate movements, and lower additional technical reserves allowed the offsetting of the drop in investment income. The P&C operations remained resilient with an expected sustainable dividend stream to the group. The money-laundering affairs of Nordea and Danske Bank are not good news and should be a concern, but our positive opinion will be kept.
Sampo repoted H1 18 profit before tax of €708m, up 63% yoy. The figures were boosted by the contribution from the cooperation agreement with Danske Bank which amounted to €197m. P&C’s pre-tax profit increased by 3% to €415m (up 1% to €222m in the Q2) and it achieved a good combined ratio of 85.8%. The contributions of Topdanmark and Nordea to earnings amounted to €105m and €388m, respectively. We will adjust our estimates to integrate the higher Life business performance.
Sampo repoted a profit before tax of €445m, up 3.5% yoy. P&C’s pre-tax profit increased by 7% to €193m, while Mandatum, the insurer’s Life arm, posted a Q1 18 pre-tax profit of €73m vs. €54m a year before. The group’s solvency ratio stood at 145.7%. The mark-to-market results dropped due to a weaker SEK and weak investment markets. Topdanmark’s contribution to the group’s earnings is now important after the consolidation of its figures. We will adjust down our estimates.
Sampo announced its intention to increase its stake in the Swedish bank Nordax to 36.25%, through a co-investment initiative with Nordic Capital Fund VIII. This acquisition will allow the Finnish insurer to have access to a new generous dividend-paying company that would help it to keep a strong payout ratio in the following years. The funding scheme should not be complicated as Sampo has access to a steady dividend stream from its subsidiaries and participations.
Except for the integration of a higher contribution from Topdanmark, after the changes in accounting treatment, Sampo’s figures were not exceptionally good. The insurer’s profitability is under pressure and its capital position is not so comfortable, but not in threat either. The decision to distribute NOK2.60/share was a surprise for us. Rising interest rates is good news for Sampo, but it is already integrated in our forecasts. Slight changes are expected in our model, excluding the dividend payout which will be revised up.
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Although 2020 will probably go down in history as one of the most challenging years experienced during our lifetime, it will also likely be chronicled as one of the best years for the recognition and appreciation of science. As we entered 2020, the COVID-19 pandemic was in its infancy. However, it rapidly evolved through the exponential rise in infections and mortality globally. Much has been achieved during the past 12 months in the fight against COVID-19, but, as we enter 2021, there are considerable concerns about the emergence of a mutant version of the virus and the second wave that we are now facing.
Companies: AVO ARBB ARIX BBGI CLIG DNL FLTA ICGT OCI PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
Today's news & views, plus announcements from KGF, JMAT, LAND, GFTU, VTY, PTEC, BME, YEW, APP, BLV
Companies: LAND APP YEW
AuM grew by +43% (+16% organic) to £29.4bn in Q3. Investment performance was strong (+£2.5bn) as COVID vaccine news propelled markets. Net inflows were maintained qoq (£792m). Sustainable was the stand out performer (+24%). AuM has broken through £30bn post-period end. Better than expected AuM drives +3% FY21e EPS and +5% in outer years. Continued distribution efforts in Sustainable, Global Equity and Multi-Asset funds stands to catalyse earnings. Alongside flow momentum, 12x FY22e PER is not reflecting this upside.
Companies: Liontrust Asset Management PLC
Whilst falling power price forecasts (the product of a range of factors, including lower gas prices and reduced demand) have weighed on GCP’s NAV in recent quarters, the good news on vaccines should provide some relief. We explained the rationale for GCP’s rebased 7p annual dividend in our last note. We would note that, even after the cut, GCP trades on the highest yield in its sector (by some distance) and the investment adviser has a pipeline of opportunities lined up that it thinks will allow GCP to maintain and possibly grow the dividend in the future.
Companies: GCP Infrastructure Investments
Urban Logistics REIT (“REIT”) has acquired another high quality “last mile” asset in the Wirral for £16.3m (5.0% NIY). The 169k sqft site is let to a subsidiary of Culina. It is leased through to 2032 and has clear rental progression, with an uplift on commencement of a reversionary lease in 2022 and a rent review in 2027. 99% rents for the Jan-Mar quarter have already been collected – highlighting the resilience in the tenant base/income. We do not change forecasts, already assuming full deployment by year end. We estimate that c.£75m capital capacity remains. We note a 6%+ dividend yield in FY22e – a 12m period of full capital deployment – and note that the discount ignores embedded NAV growth potential.
Companies: Urban Logistics REIT plc
The Thistle Portfolio - Sigma’s first PRS mandate for clients of Gatehouse Bank – has been sold to Goldman Sachs and Pitmore for c.£150m. This was built at a £110m cost only ~5 years ago. This marks one of the few major transactions of a portfolio of single-let family homes in the UK and underscores the value which Sigma’s model is able to create with the 4.15% exit net initial yield (“NIY”) a full 35bps better than current assumption. This has positive implications for returns in The PRS REIT, the EQT mandate and for Sigma’s model overall. The sale crystallises a c.£3m carried interest; higher than expected. We do not change forecasts in light of imminent FY20 results. Sigma continues to trade at a significant discount to our 200p/share intrinsic value, which excludes any upside from further fundraising.
Companies: Sigma Capital Group plc
Further media reports that Dr Martens, the British Boot brand is planning an IPO on the LSE. It is currently owned by PE group, Permira who is expected to sell down its stake at the IPO. March 2020 YE the group had revenues of £672m and EBITDA of £184m. Deal size TBC. Upon Admission to AIM, Nightcap will acquire The London Cocktail Club Limited (the "London Cocktail Club"), which is an award winning independent operator of ten individually themed cocktail bars in nine London locations and one location in Bristol. Offer TBC Due mid Jan. HSS Hire Group, HSS.L transfer from Main to Aim. Mkt Cap c. £70m. Recently raised £52.6m. Leading supplier of tool and equipment for hire in the United Kingdom and Ireland and has provided equipment hire services in the United Kingdom for more than 60 years, primarily focusing on the B2B market. Due 14 Jan. VH Global Sustainable Energy Opportunities plc, a closed-ended investment Company focused on making sustainable energy infrastructure investments, today announces intends to launch an initial public offering of shares on the Official List (Premium) of the Main Market of the London Stock Exchange. Due by Early Feb.
Companies: IUG CBP KAT APP RST DIS NICL BOKU CNIC HE1
Hipgnosis Songs Fund, is independently valued by Massarsky, who in December chose to reduce the discount rate on the revenues generated by the portfolio from 9% to 8.5%, due to strong evidence of growth in streaming numbers and the stable nature of the revenue stream. This produced a NAV of 125.35p as at the 30 September interim period end. It is worth noting the recent publication of significant changes in the discount rate as announced by Professor Aswath Damodaran of the Stern Business School in New York for the Entertainment Industry to 4.82% from 7.83% in January 2020. Combined with recent evidence that music streaming revenues in 2020 are now larger than the entire music market in 2016, we believe this is an encouraging backdrop for potential further reductions in the discount rate being applied by Massarsky going forward
Companies: Hipgnosis Songs Fund C Shares
Henderson Opportunities Trust (HOT) has performed strongly since experiencing sharp NAV and share price declines in the Q120 market sell-off, powering to the top of the AIC UK All Companies sector over the past 12 months with an NAV total return of c 40% in the second half of 2020. Managers James Henderson and Laura Foll say performance has benefited from holding a number of ‘next-generation leaders’ in the UK. The portfolio is esoteric in its make-up and seeks to avoid being overly exposed to trends in the global and domestic economy. The managers continue to see good value opportunities across the UK market, particularly on AIM, and say their intention to maintain gearing at a ‘decent’ level (c 10–15%) is indicative of feeling the portfolio and market offer good value.
Companies: Henderson Opportunities Trust
I once sat through a three-hour performance of Samuel Beckett’s Waiting for Godot at the Theatre Royal which, despite the best efforts of Ian McKellen and Patrick Stewart – both of whom I like very much – to this day remains one of the dreariest experiences of my life. It is on that note that we welcome 2021, with all the promise it holds, and return to our ‘top picks’ for 2020, a year which is probably best summarised (for those of us lucky enough to have been not directly impacted by the virus) by the Lord Chamberlain’s censor in his review of the first performance of Godot in 1955 – in which he described having to ‘endure hours [and hours] of angry boredom’. As always, these ‘picks’ do not represent advice, and should in no way be relied upon as such; they have been chosen on a lighthearted basis with no thought given to their suitability for your personal circumstances.
Companies: TFG IPU IEM HOT OCI BRWM JRS RICA BHMG BRLA JMI GPM MINI SMT
The PRS REIT (“PRSR”) has seen 529 completions in Q2 as momentum is sustained. 3,163 homes have been completed (£29m ERV) progressing towards the 5,200 target by FY22e. We note the Thistle Portfolio sale announced today will likely provide a positive catalyst for valuation in the next 12 months. The shares currently trade on a 24% discount to NAV with a 5%+ yield (growing to 6.5% on stabilisation). We expect progress over the next 9-12m to represent an inflection point in terms of return visibility and the discount to narrow, alongside an attractive yield and NAV progression, driving a total return profile.
Companies: PRS REIT Plc
CVC Credit Partners European Opportunities (CCPEOL) has achieved a total NAV return of 1.9% (target 8% annual return) in the last 12 months. Its index outperformance was helped by sector rotation early in the COVID-19 crisis and by staying positive on the market. The manager sees the greatest opportunity in the upper CCC and lower B segments and in structured finance. CCPEOL remains optimistic in the credit opportunities segment, despite the market recovery. It expects 2021 will bring more leveraged loan issuance from broader industrial segments, thus providing greater investment prospects. Portfolio resilience led CCPEOL to raise its annual dividend from 4p/4c per share to 4.5p/4.5c in September 2020.
Companies: CVC Credit Partners Europn Opprtnity
Cornish Metals (TSX-V: CUSN) intends to list on AIM. The Company is proposing to raise £5 million by way of private placement of new Common Shares (the "Fundraising") to advance the United Downs copper-tin project. The Company expects that Admission will become effective in February 2021. The Company's Common Shares will continue to be listed and trade on the TSX-V in Canada. Further media reports that Dr Martens, the British Boot brand is planning an IPO on the LSE. It is currently owned by PE group, Permira who is expected to sell down its stake at the IPO. March 2020 YE the group had revenues of £672m and EBITDA of £184m. Deal size TBC. VH Global Sustainable Energy Opportunities plc, a closed-ended investment Company focused on making sustainable energy infrastructure investments, today announces intends to launch an initial public offering of shares on the Official List (Premium) of the Main Market of the London Stock Exchange. Due by Early Feb. Moonpig, the digital greeting card company, is planning an IPO with a potential valuation of £1bln, according to multiple media reports. Further details expected to be announced over the next two weeks.
Companies: ZPHR PANR PRSM SENS CYAN G4M ITX CRCL FEN ZIN
Interim results demonstrate YoY growth and a resilient outcome that has exceeded management's expectations from the start of the Covid-19 pandemic. This is testament to the degree of recurring revenue generated across the business. FY21 trading looks to be more challenging, as notably lower new insurance sales post-lockdown will translate into lower premium income. A number of organic opportunities are being worked on to fill the shortfall. Rising UK redundancies and their impact on policyholder retentions creates great uncertainty, hence our forecasts remain withdrawn and recommendation remains Under Review.
Companies: Personal Group Holdings Plc
Atlantis Japan Growth Fund (AJG) invests in a diversified portfolio of listed Japanese equities, with the aim of realising long-term capital growth. It has a bias towards growth stocks. Lead adviser Taeko Setaishi believes several trends accelerated by the coronavirus crisis and new Prime Minister Yoshihide Suga’s structural reform agenda have the potential to generate new investment opportunities and productivity gains, which will benefit companies in many sectors. AJG’s performance has been positive in absolute terms and it has outperformed its benchmark over one, three, five and 10 years. The fund has also outperformed the UK market over all these periods. AJG pays a quarterly dividend of 1% of NAV.
Companies: Atlantis Japan Growth Fund