Chesnara plc (LON:CSNE) is the topic of conversation when Hardman and Co’s Financial Analyst Dr Brian Moretta caught up with DirectorsTalk for an exclusive interview.
Q1: Chesnara recently announced its 2023 interim result, what were the main features?
A1: The company’s 2023 interim results showcased a robust Economic Value profit of £61.0m, a notable recovery from the £75.7m loss in H1 2022 and included £28.4m from acquisitions. Despite dividend payouts, Economic Value saw a 2% increase to £523.2m.
The interim dividend was uplifted by 3% to 8.36p per share, reflecting solid cash generation of £21.8m and base cash generation of £11.1m after symmetric adjustment.
Q2: What were the main factors driving the improvement in Economic Value?
A2: Healthy equity market returns, especially from Sweden, had a strong positive impact on the results. Rising interest rates were also a net positive, although the position in each country varied, and widening credit spreads were a drag.
We also saw a much-improved operating performance as well as the beneficial effect of acquisitions.
Q3: Can you tell me more about the operational improvements compared with 2022?
A3: Theiroperational improvements in 2023, relative to 2022, are quite notable, especially in Sweden.
Previously, the company experienced challenges, particularly with lapses due to legislative changes and irrational competitor pricing. However, an improvement was observed in the second half of 2022, which continued into the first half of 2023. Lapses were slightly worse than expected but significantly better than the previous year. Other countries also had areas that were better than expected.
Q4: The company has placed a greater emphasis on acquisitions recently, what news is there in that area?
A4: They have been more active in the acquisitions space. So far in 2023, they’ve announced a new deal involving the protection book from Canada Life’s onshore UK business, this was acquired at a 44% discount, and added £7m to Economic Value.
With recent acquisitions integrated and the UK ones on course for completion by early 2024, the company is poised for further M&A activities, with no operational barriers to additional deals.
The company has £128m of cash available on the balance sheet and a revolving credit facility takes resources to over £200m before any further capital raising.
Q5: Many investors hold this for the yield, can you tell us more about cash generation and the dividend?
Chesnara has demonstrated a robust approach to cash generation and dividend distribution.
An interim dividend of 8.26p per share was announced, matching our forecast, and marking a 3% increase from the 2022 interim. Dividends from the divisions are projected to total £72m in 2023, providing over 2x the cost of the full year dividend to shareholders, estimated at £35.3m, thus signalling the sustainability of the dividend moving forward.
Management is mindful that many investors hold shares primarily for income and, considering recent inflation rates, a temporary increase in the dividend growth rate might be contemplated if inflation persists at higher levels.