First up we have had results today from Primary Health Properties (PHP) which I wrote up briefly back in March. Not much has changed here since then as they continue to churn out slightly higher dividends which have grown by around 3.5% on average over the last few years and 2.6% in these figures. They achieve this off the back of a portfolio of health related properties in the UK leased principally to GPs, NHS organisations and other associated healthcare users.
The current 12 months of dividends including today's 9.75 pence interim comes in at 19.5 pence and offers a yield of 5.7% based on last nights closing price of 345 pence. Other points to note are that EPRA net asset value per share increased by 2.7% to 308 pence (31 December 2013: 300 pence) so the shares stand at a premium. It is also worth noting that the dividend is only covered 76% by earnings in these numbers but this was up from 52% last year, but they are aiming to get this to be fully covered. Also worth noting that net debt is quite high at £624.5 million which equates to a loan to value of (LTV) of 63.6%, although around 25% of this is now unsecured after debt refinancing recently.
So overall a decent growing yield from a property portfolio serving health related / government back tenants, albneit not especially cheap against its assets and with quite high levels of debt.
Next up is another stock I mentioned recently - The Renewable Infrastructure Group (TRIG) which has a portfolio of operational wind and solar assets diversified across weather systems, regulatory regimes and power markets. They recently had a C share issue to raise and invest in more assets and the shares have therefore drifted back to 103 pence as a result. With this years suggested full year dividend of 6.08 pence (Source: Company RNS today) they are yielding 5.9% and this would be expected to grow roughly in line with inflation going forward - which is nice. The NAV was 102.3 pence at the June 2014 reporting date so not too much of a premium right now. Not much else to say on this one but you can check out the results if you want to read more about it.
Finally going up the risk and complexity scale we had interim results from Phoenix Group (PHNX) which describes itself as the UK's largest specialist closed life fund consolidator. It is quite a complicated one to get to grips with but overall it is quite a simple business as they are mostly just running off and generating cash from closed life assurance books of business. It has been quite highly geared but this has now reduced to 35% pro-forma with about £1.5 billion of shareholder debt on the balance sheet and about £1.8 billion in total. They say they on track to generate £500 to £550 million of cash this year and £2.8 billion between 2014 and 2019 although I believe the latter figures include the £390 million they got for the dispsoal of their IGNIS asset management arm to Standard Life recently.
The dividend was unchanged at 26.7 pence and this was covered 2.7x by reported diluted earnings from continuing operations. This together with last years final of the same amount give a yield of 7.5% at a price of 712 pence this morning.
As they have now got their debt levels down and are talking of getting and maintaining an investment grade credit rating this suggests to me that the dividend should be well underpinned by the cash flow they are expecting over the next few years. It should also allow them to acquire more closed books (at a discount presumably) and or pay out surplus cash to shareholders. On this the Company said:
"The underlying strength of the business model and the stable and predictable long-term cash generation has enabled us to declare a 2014 interim dividend of 26.7p per share, in line with the 2013 interim dividend. Given the run-off nature of the group's business, the Board believes it is prudent to maintain a stable, sustainable dividend whilst the Group builds its financial flexibility to execute its growth strategy and will keep the dividend under review.
The first half of 2014 has delivered many successes for the Group. The balance sheet has been transformed, our structure has been simplified and our reliance upon bank financing has been reduced. We have created a sound platform for Phoenix to consider potential acquisition opportunities, enabling us to grow the business and strengthen our existing position as the UK's largest specialist consolidator of closed life funds."
So overall a rather complex situation based on what should be a relatively simple and hopefully predictable business of running of closed life books which have been bought at a discount to their future value. Thus if managed properly and if the assumption underlying the life books turn out to be prudent then the cash / profits should flow over the years. Obviously market movements and regulatory changes can upset this outlook. On regulatory changes they detailed some of the financial effect in their statement which you should probably read if you are interested in this one. They summarised the effects by saying the following:
"The first half of 2014 saw a number of key regulatory changes to the UK life assurance sector. The financial impacts of several of these changes are still uncertain but the Group continues to take actions to prepare for the possible range of outcomes, including possible changes to policyholder decision-making."