Thursday 6 December 2012

Portfolio Review: Resolution (LSE:RSL)

I bought Resolution over a year ago, primarily for its high yield.

But yield is not everything: I also look for a sustainable market model and sound corporate management.

So, after a year, how is it doing?

Resolution is a British insurance 'takeover specialist', which buys life insurers to merge them into (in theory) a more profitable whole. Resolution bought Friends Provident in 2009 and took its place in the FTSE 100. In 2010, it snapped up the UK savings and life assurance arm of France's AXA and Bupa's life, critical illness and income protection business, bringing them together under as the Friends Life Group.
Resolution's shares performed quite strongly until March 2012. No doubt it pleased institutional shareholders by returning £500 million in share buybacks, after claiming there were no further acquisitions worth pursuing: it pulled out of the bidding for Phoenix - indicating that it was keeping a sharp eye on value for money.
But then the share price plummeted, as a result of a string of management changes, and growing concerns that what was supposed to be a cash cow for investors was possibly running dry. There has been a fair amount of negative broker comment.
Its Q3 results, published in November, revealed more bad news, as integrating AXA into its business appears to have been more difficult and expensive than anticipated (particularly in respect of the IT systems) and implementing its outsourcing strategy. The international division also seems to be having a number of problems, which are being addressed.
However, some positive news was reported:
  • new business profitability continues to improve in most businesses 
  • the target for cost reductions has been raised although there will be higher expected costs to complete the process
  • the capital position remains robust
  • dividend plans are confirmed

Resolution continues to offer a stunning dividend yield of over 8.5% - putting it at the top of the FTSE 100 - with a forecast yield of nearly 9%.  Dividend cover is a solid 2.5 with a p/e of just over 10.

So, although Resolution has hit some problems, this still looks like a company with a lot of future in it: so I am happy to continue to HOLD.

I am not a financial adviser 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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