Phoenix Group lifts dividend and cash generation targets

Closed life fund consolidator Phoenix Group hoisted its dividend 5% as it said November and December's two acquisitions would likely support a similar increase for the forthcoming interim payout.

The £373m acquisition of AXA Wealth's pensions and protection business in November was already generating increased synergy benefits, while the £933m purchase of the Abbey Life business in December provides key support to the expected half-time boost.

The 2016 calendar year generated total revenue net of reinsurance of £7.4bn, up from £1bn the previous year, led to a group operating profit of £351m, up from £324m.

With the £486m of cash generated more than double the previous year and some distance ahead of expectations of £264m, the board were happy to hike the final dividend 5% to 23.9p per share.

Phoenix reported a Solvency II capital surplus of £1.9bn, which compares to consensus estimates of £1.7bn, with a shareholder capital coverage ratio of 170% up from 154% over the year.

Chief executive Clive Bannister said the group had safely incorporated the new customers from the AXA Wealth and Abbey Life businesses and was focused on delivering the planned cost and capital synergies, with AXA now expected to generate £13-15m per year, up from original expectations of £10m of cost savings per annum, while management expect migration of Abbey to its own policies will generate capital and cost benefits.

With the UK life and pensions market undergoing fundamental change, driven by changes in regulation and customer behaviour, Phoenix expects to be able to acquire further business in future.

But based on the current business, management upgraded their long-term targets for cash generation to £2.8bn for 2016-2020, up from £2.0bn, of which £1-1.2bn of cash generation is expected in this and next year.