The economy is certainly slowing down from the 4 per cent growth seen in 1994
The economy is certainly slowing down from the 4 per cent growth seen in 1994. The Chancellor and his new team of ministers who gathered yesterday at Chevening in Kent for their pre-budget brainstorming session must have breathed a sigh of relief at the first estimate of national output in the last three months. Tim Eggar, the industry and energy minister, dropped a very public hint in the Commons this week that Shell will have to look again at ocean disposal as it develops the possibilities left to it, and he would no doubt be delighted to see the company go back to its original plan, which is what an increasing body of opinion now expects.
An inshore disposal operation around the UK is limited to a few deep- water coastal sites which have yet to be licensed by the Government to carry out the work. Few realise quite how shallow the continental shelf is around most of the UK, and for that matter the German coast, where the voters of Lower Saxony may come to regret the suggestion made by the state’s environment ministry that break-up could be done in a local yard.In the UK, possible sites are mainly in Scotland, where the idea will be about as popular as having a nuclear dump in the backyard Greenpeace is not the only capable protest group around Shell’s troubles are far from over.. The British Government has made clear it will set tough conditions for an inshore break-up, and that it may rule out any new proposal altogether if it does not come up to scratch. After the fury stirred up in Whitehall by the last U-turn, these are not empty threats. The company could well be forced into another confidence-shattering U-turn over Brent Spar, the oil storage installation that now languishes in a Norwegian fjord while Shell looks at how to dispose of it.
By contrast the Pru, yielding a prospective 5.8 per cent at 332p yesterday, looks a better way into the sector.. Poor Shell – what another fine mess you’ve got yourself in. They could see dividend growth of around 20 per cent a year if they choose to follow United Friendly and give shareholders a bigger share in the life fund surplus But that is already reflected in the share price. TransAtlantic, Mr Gordon’s UK vehicle, has made no secret of its desire to get back into the business either here or in the US. The cash from the sale and committed bank lines will give it a war chest topping pounds 700m, although there may be easier targets than a quoted acquisition.But perhaps the most persuasive factor in the recent strength in the life sector is the feeling that most of the bad news is now out of the way.
The new regulatory system is in place, while the Government continues to pare away at the state welfare and pension systems, giving an increased incentive for people to look to private provision.That should help bring the old-fashioned door-to-door operations of the likes of Refuge, on a forward yield of 4.2 per cent with the shares at 389p, and Britannic, 3.2 per cent at 603p, back into fashion. The stock market, by contrast, appears to take a rosier view, as the sector’s 6 per cent outperformance against the All Share index since the turn of the year shows There are several reasons. The most obvious relates to the stock market’s own 10 per cent rise this year, which has boosted insurance companies’ heavyweight investment portfolios.Takeover hopes have also continued to swirl around the sector, which the Sun Life deal can only add to. Sales of life and pensions products have been tumbling as a result of the bad publicity engendered by the “mis-selling” debacle and the continuing feel-bad factor has put off potential purchasers. It is hardly surprising, therefore, that a shrewd financial operator like Donald Gordon, who built Liberty Life into South Africa’s largest quoted insurance group, should have chosen now to sell out of Sun Life, one of the UK’s biggest life insurance operators.
His decision seemed to chime in with gloomy news from Prudential, which dominates the UK market and reported that sales of regular premium products like personal equity plans and life policies had fallen for the second half-year in a row.Some believe that these figures will get worse still, as the industry faces a triple squeeze from declining sales, higher costs due to increased regulation and the resulting enforced push into lower-margin products like traditional “drop down dead” life insurance cover.
On earnings per share of 24.2p this time rising to 29p, the shares stand on a prospective p/e of 11.That is not too demanding, but at this stage in the cycle, a small discount is probably appropriate, and until gearing starts reducing, the shares are unlikely to do more than track what is expected to be a dull market Hold on.. The life insurance industry has had a torrid time of it recently. It is certainly quite high enough for the bid to sail through.That will please chief executive Alan Jackson, who will now bow out of BTR in December, having tied up all the loose threads. It is hardly a spectacular swansong, but BTR is not a flash company, just a successful one.Analysts think the deal will be broadly earnings neutral next year and most have left their forecasts unchanged.