Just Group profits drop, dividend reinstatement deferred

Retirement products specialist Just Group posted a drop in interim profit on Wednesday and said it would not be reinstating its dividend as planned as it pointed to "economic and regulatory challenges".

In the six months to the end of June, underlying operating profit fell 27% to £114m as new business operating profit declined 39% to £74m. Total revenue rose to £2.03bn from £1.5bn in the first half of 2018 and net assets were up 28% to £2.1bn.

The company's Solvency II coverage ratio came in in line with expectations at 149%, while new business strain was halved from the first half of last year to £47m.

Just Group said it remains committed to achieving organic capital generation by 2022, having made "good" initial progress and with a number of initiatives underway.

In the first half, Just Group's solvency capital requirement was increased by £70m to take into account new modelling of risk on lifetime mortgages and the company said it now expects a further £130m of capital to be required by the end of 2021 if the Prudential Regulation Authority's new measures about lifetime mortgages are implemented.

Chief executive officer David Richardson said: "Whilst we have made significant progress in adapting our business model, as is evident from today’s results, the first half of 2019 has not been easy for our business or for shareholders, as we have faced economic and regulatory challenges."

The company had previously said it expected to restart dividend payments for the 2019 financial. However, it said on Wednesday that directors are not recommending the payment of an interim dividend because of the aforementioned uncertainty.

"We will revisit our dividend policy with our full year results, informed by our capital position and the outlook at that time," Richardson said.

At 1040 BST the shares were down 7.7% at 42.77p.

Shore Capital analyst Paul De'Ath said the decision to defer the reinstatement of the dividend was "sensible".

"Indeed, one could argue that paying any dividend during a period of intense capital preservation would be counterproductive," he said.

"JUST is well positioned in two structural growth markets of defined benefit derisking and lifetime mortgages but it doesn’t have sufficient capital strength to fully capitalise on the opportunities available. The business is looking into structures that could utilise JUST’s skills but using third party capital. This could allow the business to quote on larger bulk annuity deals.

"The share price has fallen significantly below the reality of events within the business and at a 2019F price-to-earnings ratio of 3.3x continues to fundamentally undervalue the group. Our fair value of 110p provides 137% upside from the current share price. We reiterate our 'buy' recommendation."