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Resolution Ltd

Following on from our recent article “ValueTheMarkets looks at High Yielders” we decided to take a closer look at Resolution Ltd as a buy and hold opportunity. We feel that the drop in share price from the middle of March, caused by the combined effect of the budget announcement on annuities and the FCA leak of an investigation into pre-2000 savings, looks to have been overdone and therefore feel that most of the downside risk is already priced in at the current level. Having recently recovered from around the 280p level to knocking on the 300p level today, we feel a break of the 300p level points towards an initial target of 340-350p with the possibility of breaking back into the long term uptrend that started mid-2012.

Fundamentally, its market cap currently sits around £4.2bn and trades on a PE ratio around 10. Revenues are expected to be lower in this FY2014 however Profit before Tax is expected to be higher. EPS is expected to fall by about 15% followed by 7% growth in FY2015. Goldman Sachs today upgraded the stock to Buy and Berenberg also recently upgraded to Hold.

Recent Broker Views

  • 24th Apr 2014, Goldman Sachs, Buy, target price 330p
  • 17th Apr 2014, Berenberg, Hold, target price 310p
  • 15th Apr 2014, Barclays, Overweight, target price 370p

Broker Berenberg recently commented on the insurance sector saying “While the fall-out from the changes will undoubtedly affect sales and sentiment in the near term, this appears to be manageable and, looking further forward, we expect the impact to be more positive. Having more flexible pensions should encourage longer-term savings volumes, with lower fees adding a positive tailwind. Overall, we expect this to drive an acceleration of the transition towards a low-cost, scale approach, with consolidation likely to follow – we expect the UK insurance and savings landscape to ultimately become a highly regulated, highly commoditised, oligopolistic marketplace.”

Overall, with over a 7% dividend yield and limited technical and fundamental downside, we recommend buying RSL between 285-300p.

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