The recent UK budget caused a shortfall for a few stocks, particularly companies offering pension annuities and bookmakers. On the back of this, the FCA have announced they are starting an investigation into insurance policies sold in the 70’s through to the 00’s – this has effected insures. However, it would be extremely dull to talk about every single company effected so only five stocks will be presented in this article; William Hill (WMH), Ladbrokes (LAD), Legal and General (LGEN), Phoenix Group Holdings (Diluted shares) (PHNX) and Resolution Ltd. (RSL). Other companies that were affected include; Aviva, Prudential, Standard Life, Admiral, Just Retirement Group PLC (LON:JRG) and Partnership Assurance Group PLC (LON:PA).
I won’t highlight the financials for William Hill, Ladbrokes and Legal and General as they are renowned and reputable companies to begin with. But as Phoenix Group and Resolution Ltd aren’t so renowned, I will mention their financials to give some depth to the kind of companies they are.
Phoenix Group made £4.2bn in sales, with a gross profit of £2.5bn and a net profit of £207m in 2013. Liabilities stood at £71.4bn whilst assets stood at £74bn – quite a high gearing ratio but as a financial company, this can be expected – even so it may still be higher than some investors may like. It was quite hard to investigate Resolutions figures as they haven’t followed the normal accounting methods of most companies (which is a little weird) but here are the accounts for those interested in reading further. Operating profits seem to be up from the year before which could be a good sign but it leaves investors in the middle of a patch of fog.
Phoenix Group are an asset management company who have ‘policyholders’. Whilst they aren’t involved in insurance, they still sold financial policies during the mentioned time period and so will still be investigated. When the investigation news was released on Friday 28th March, Phoenix Group dropped by 23% at its most and finished the day down 11.53%. That means they are down 5.23% on the week, 12.07% from six months ago and 2.4% from a year ago. However, the share price is up 162.5% since mid 2012 (it’s lowest historical price).
Resolution Ltd is a company that sells pension, investment and insurance products. They manage £115bn of funds from customers who live in a range of countries. They were hit with the news of the investigation and ended the day (28th March) down 7.12%. That’s down 6.59% on the week, 8.35% from six months ago and up 8.73% on the year. However their share price seems to have peaked at the start of March at 380p and is now down 21.05% since then.
Legal and General were hit both with the changing over pensions in the budget and with the FCA investigation, the pensions news more so. The budget presented a dilemma for pension providers as Osborne announced that soon to retire workers wouldn’t have to (legally) choose a pension annuity when they retire. This caused a huge shock to annuity providers, Legal and General included. Just Retirement Group and Partnership Assurance were hit the hardest seeing between 30% and 55% of their market cap wiped off in half a day. However, these companies only provide annuities so it’s advised to stay away from these two stocks. For Legal and General, 25% of their revenue derives from pension annuities so they saw a dip in share price too but it’s more likely that this company can turn their business model around to suit this new change. The share price is down 14.69% from a month ago but still up 18.7% from a year ago.
The budget also hit bookmakers as it was announced that a new 25% tax on fixed odds coupon machines will be implemented soon. As these machines have become more popular over recent years and have caused a lot of losses for the pockets of gamblers (the machines, not the betting shops – weird I know), the government have decided to charge this tax to try and prevent betting shops from relying on these for their main source of income and go back to concentrating on previous markets such as Horses, Greyhounds and Football. This hit William Hill and Ladbrokes share prices; down just over 6.8% and under 14% respectively on the day of the budget. they have recovered a little but not much. William Hill are down 14.75% from six months ago and 7.35% from a year ago. Ladbrokes is down 21.96% from six months ago and 40.66% from a year ago.
So to conclude, these stocks have recently been hit in one way or another and are cheaper than they were a few weeks and months ago. This could mean that they are undervalued and may make a few buck in the coming months or years. However, this article only highlights a couple of events and the appropriate share price movements. This doesn’t automatically make them good investments so it’s best to research these companies further to see what kind of companies they are and this article should only be used to highlight these companies.
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