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A change in government policy regarding pensions has hurt the life assurance industry, and Standard Life reported a 67% drop in annuity sales on the back of this. The change in legislation means that ‘no one will to have to buy an annuity’ ever again, and the Edinburgh-based company is focusing on fee-based products to offset the drop in the annuities business.
The new laws relating to pensions and retirement that were introduced by the government were not all bad for the industry, and the automatic enrolment pension scheme added nearly 300,000 new clients for the finance house this year.
Over the years Standard Life has become less dependent on the life insurance business and more focused on the asset management division. This puts it in a strong position to deal with the new laws introduced by George Osborne.
Nearly a year ago Standard Life acquired Ignis asset management for £390 million, and the deal brought with it £290 billion of funds under management, but the departure of a bond fund management team from the Ignis unit resulted in a £2 billion outflow of funds.
The third-quarter update, released in October, showed that net inflows fell to zero. The company sold off its Canadian business for £2.2 billion, and the majority of the proceeds were returned to shareholders in the form of a special dividend. Although the share price is still above the pre-special dividend announcement, having increased exposure to the UK market may prove to be a problem in the long run.
Standard Life will reveal its full-year numbers on Friday 20 February, and the consensus is for revenue of £23.11 billion and adjusted net profit of £501 million. These estimates equate to a 12.5% increase in revenue and a 17% drop in adjusted net profit. The insurer will also report its second-half figures on the same day and traders are anticipating adjusted net income of £283 million, compared with first-half adjusted net profit of £265 million.
Equity analysts are bullish on Standard Life; out of the 22 recommendations, four are buys, 15 are holds and three are sells. The average target price is 419p, which is 4% above the current price. However, investment banks are more bullish on Legal & General, and out of the 22 ratings, 11 are buys, six are holds and five are sells. The average target price is 261p, which is slightly below the current price.
The stock is receiving support at 400p level which coincides with the 50- and 100-day moving averages, and if this area be held the 425p region will be the target. A move below 400p will turn the level into resistance and the downside support of 380p will be brought into play.