The Investment Column: Morgan Stanley raises note of caution for UK life assurers

Car dealer Lookers can accelerate as overall market goes into reverse; Consulting group is only for the brave

Since the bottom of the bear market, though, the quoted life assurers have doubled in value, while the FTSE 100 is up a more modest two-thirds. Enthusiasts for the sector say that the fire-fighting is over and companies are in rude enough financial health to chase the new business that will inevitably flow as people realise they must save for their future and as confidence in the industry leaks back. This column has been such an enthusiast but, in the interests of balance, we should point you to an interesting piece of analysis on the life assurance sector by Morgan Stanley, the respected investment bank, which flicked on the hazard warning lights yesterday.

With three of the FTSE 100's four major UK life assurers having reported their first-half figures (Aviva, the owner of Norwich Union, reports on Thursday), Morgan Stanley is concerned that competition for customers is growing faster than customers' confidence is returning. And with too many life assurers looking for too much business among too few customers, profits will undoubtedly come under pressure.

The margin declines reported so far have been blamed on falling sales of mortgage protection plans and other insurance, linked to the downturn in the housing market. Although Morgan Stanley thinks the situation could stabilise if the interest rate cut revives the number of housing transactions, there are still too many players expanding in this market, it argues.

And it is concerned that the individual annuity market could also become less profitable. It is also an area where life assurers have expanded, in the expectation of growth linked to an ageing population.

Prudential is the only stock Morgan Stanley recommends at the moment. It is expanding fast in Asia, so it will be affected less by a tougher UK market. Friends Provident and Legal & General, which in effect do all their business in the UK, are given a neutral rating by the bank.

And Morgan Stanley is particularly negative on Aviva ahead of its results. Norwich Union is number one in the UK, so it has most to lose, particularly if the mutually owned Standard Life revives. Its question for Aviva this week: "Where will future earnings growth come from?"

Car dealer Lookers can accelerate as overall market goes into reverse

Take a look at Lookers. The car dealer - concentrated in North-west England and Northern Ireland and focusing on volume car marks such as Vauxhall, Renault and Honda - just did its seventh acquisition in a year. It is buying two Volvo dealerships, a deal notable not for its size (estimated at less than £1.5m) but for the fact that it takes Lookers over the border into Scotland for the first time.

The acquisitions will be increasingly important as the market for new cars turns down. It is expected to fall about 5 per cent this year in line with weaker consumer confidence.

As well as buying growth that cannot be so easily achieved organically, they have also diversified Lookers. It now has a greater proportion of its business in the used car market and FPS, which it bought for £31m a year ago, supplies spare parts. It is highly profitable and could be seen as insurance against a prolonged downturn in car buying, since if people don't buy new cars, they will surely have to repair their increasingly clapped out old ones.

Lookers is on course to make profits (adjusted for goodwill and one-offs) of £18.4m this year, according to its broker. On a multiple of earnings, it is the cheapest car dealer in the sector, which looks a little unfair (although its relatively high level of debt, while not a worry, could be a reason).

Park it in your portfolio.

Consulting group is only for the brave

Management Consulting Group does what it says on the letterhead. Its consultants, in two divisions: Proudfoot, which advises managers on how to implement cost-saving programmes or other organisational changes, and Parson, which suggests new financial controls. Blue-chip clients include BP, Nissan, Warner Bros and Citigroup.

Relative to the global giants of the consulting world, these are small players with a patchy track record. This time last year, Parson was building up to do work connected with the tight new anti-fraud regulations introduced in the US under Sarbanes-Oxley. Management was pleased yesterday that in the six months to 30 June this year, Parson maintaining sales on the previous half-year, despite the US work easing off. Proudfoot, though, has proved unable to fully replace some of the big contracts it was enjoying a year ago.

Management Consulting aims to grow in three ways: by opening new offices across the globe, winning new business from existing offices (and an order book up 30 per cent was a highlight yesterday), and making a big acquisition. Each way, it will be a volatile ride.

We said buy when the shares were 45.75p in 2003, and they have been all over the place since then. At 51.5p yesterday, they are only for the brave.

News
Emma Watson has become the latest target of the 4Chan nude hacking scandal
peopleThreats follows actress' speech on feminism and equality at the UN
News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
Sport
David Moyes and Louis van Gaal
football
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
PROMOTED VIDEO
Life and Style
tech
Life and Style
Alan Turing, who was convicted of gross indecency in 1952, was granted a royal pardon last year
life
Life and Style
life
Arts and Entertainment
Tennis player Andy Murray's mum Judy has been paired with Anton du Beke for Strictly Come Dancing. 'I'm absolutely delighted,' she said.
tvJudy Murray 'struggling' to let Anton Du Beke take control on Strictly
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
Arts and Entertainment
The cover of Dark Side of the Moon
musicCan 'The Endless River' carry on the tradition? See for yourself
Sport
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
rugby
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Worldwide ticket sales for The Lion King musical surpassed $6.2bn ($3.8bn) this summer
tvMusical is biggest grossing show or film in history
Voices
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
Arts and Entertainment
Salmond told a Scottish television chat show in 2001that he would also sit in front of a mirror and say things like,
tvCelebrity Trekkies from Alex Salmond to Barack Obama
News
i100
Life and Style
food + drink
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Quantitative Risk Manager

Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits