Wednesday 9 November 2011

Portfolio Buy: Resolution (LSE:RSL)

 As a DIY Income Investor, I am looking for a good yield. One source of this is a high-yield share (Level 6 on the Income Pyramid), which ideally should have a sustainable market model, based on sound corporate management.

A quick look at the performance of the FTSE 100 constituent companies threw up this opportunity with (as of today) a dividend yield of over 7% and a p/e of under 3!

The security with such mouth-watering statistics is Resolution, the British insurance 'takeover specialist', which buys British life insurers to merge them into a more profitable whole. Over the past two years, Resolution has acquired Friends Provident, some U.K. life insurance assets of France's AXA SA, and Bupa Health Assurance Ltd for close to a total of £4.7 billion.

The insurer recently announced a huge 15-year £1.4 billion agreement to outsource the back-office functions of its British life insurance unit. The outsourcing deal at Resolution's Friends Life business will result in 1,900 employees - nearly half the unit's workforce - transferring to the new operator, Diligenta, part of Tata Consultancy Services.

Resolution also plans to set up an in-house asset management business to invest assets currently managed on its behalf by F&C and Axa, thereby making significant savings in management and investment costs.

In addition, Resolution is hoping to pick up new insurance businesses from distressed banks in the Euro zone as well as in the US. However, Resolution recently pulled out of the bidding for Phoenix - indicating that it is keeping a sharp eye on value for money.

To me this looks like an interesting business strategy - specialising and driving down costs. And the financial metrics make this company a very attractive potential target; I've bought at £2.38.

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

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