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.

Voices
The Sumatran tiger, endemic to the Indonesian island of Sumatra, is an endangered species
voicesJonathon Porritt: The wild tiger population is thought to have dropped by 97 per cent since 1900
Arts and Entertainment
Beast would strip to his underpants and take to the stage with a slogan scrawled on his bare chest whilst fans shouted “you fat bastard” at him
musicIndie music promoter was was a feature at Carter gigs
News
news
Arts and Entertainment
Story line: Susanoo slays the Yamata no Orochi serpent in the Japanese version of a myth dating back 40,000 years
arts + entsApplying the theory of evolution to the world's many mythologies
PROMOTED VIDEO
News
Performers dressed as Tunnocks chocolate teacakes, a renowned Scottish confectionary, perform during the opening ceremony of the 2014 Commonwealth Games at Celtic Park in Glasgow on July 23, 2014.
news
Life and Style
Popular plonk: Lambrusco is selling strong
Food + drinkNaff Seventies corner-shop staple is this year's Aperol Spritz
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
News
Shake down: Michelle and Barack Obama bump knuckles before an election night rally in Minnesota in 2008, the 'Washington Post' called it 'the fist bump heard round the world'
newsThe pound, a.k.a. the dap, greatly improves hygiene
Arts and Entertainment
La Roux
music
Arts and Entertainment
Graham Fellows as John Shuttleworth
comedySean O'Grady joins Graham Fellows down his local Spar
News
people
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Ross Burden pictured in 2002
people
News
Elisabeth Murdoch: The 44-year-old said she felt a responsibility to 'stand up and be counted’'
media... says Rupert Murdoch
Arts and Entertainment
tv
Extras
indybest
Sport
Arsenal signing Calum Chambers
sportGunners complete £16m transfer of Southampton youngster
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

Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

£350 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

Java Developer - Banking - London - Up to £560/day

£500 - £560 per day: Orgtel: Java Developer FX - Banking - London - Up to £560...

HR Business Analyst, Bristol, £350-400pd

£350 - £400 per day + competitive: Orgtel: My client, a leading bank, is curre...

Account Manager - (Product & Account Management, Marketing)

£26000 - £30000 per annum + Benefits: Ashdown Group: Account Manager - (Produc...

Day In a Page

The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
Countries that don’t survey their tigers risk losing them altogether

Countries that don’t survey their tigers risk losing them

Jonathon Porritt sounds the alarm
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz
A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on