James Moore: Disappointing Standard Lifesaved by dividend

Investment View: Prudential's hubris has prompted it to embark on two failed mega-mergers

Standard Life 202.6p (-4.6p)

Our view Hold

Prudential 686p (-14.5p)

Our view Avoid

St James's Place capita l311.3p (-5.9p)

Our view Hold

Following last week's look at Legal & General and Aviva, how about Standard Life, which once ran a rather cringeworthy ad campaign in which lots of actors gushed, "I like Standard Life". Would any investors say this?

Not recently. The shares have been falling and now stand at just over 200p. It floated at 230p so the legion of policyholders who received free shares when it demutualised, or at least those who bought them at that time, appear to be out of pocket.

Well, not quite. They got a 5 per cent up front discount and another 5 per cent bonus for holding on for a year. Plus a truckload of dividends. So it's not all bad.

But Standard Life still presents something of a conundrum. It trades on just 1.1 times the value of its in-force book of business, slightly less than its rival UK-focused peer Legal & General. However, based on forecast earnings it is much, much more expensive at 11.8 times this year's numbers. That makes Standard look pricey even compared with Prudential (see below) which offers much better growth prospects.

In terms of profits, then, Standard isn't doing as well as it should do. And there are some who doubt management's ability to address that issue, cosseted as they are in the arms of a rather low-risk business and buoyed by incentive schemes which make it too easy for them to earn bumper bonuses. Maybe the fate of Aviva's Andrew Moss, who resigned under pressure from shareholders, will concentrate minds.

The company did do rather better than analysts had forecast at its recent first-quarter trading update. Revenues at £5bn were down, but not by as much as had been feared, while corporate pensions business poured in and assets under management ticked up to £207bn, a 4 per cent rise.

When I last looked at Standard Life, on 21 December, the shares stood at 197.6p. They are marginally ahead of that now. Standard faces the same issue as its peers: it isn't going to be easy persuading squeezed consumers in the UK to save, although Standard does have businesses in Canada and the Far East which might offer better prospects.

All that said, the dividend makes these shares worth holding on to, and it is fully covered by earnings so shouldn't be under threat. Hold.

So to the aforementioned Prudential. The man of from the Pru is gone from the UK, a casualty of regulation that was introduced in part because of his habit of selling people wildly inappropriate products. But he's very much alive and kicking in Vietnam. And all over the Far East, in fact.

In the former, at least, the company's salesmen used to venerate its executives by having big pictures of them on their lockers. Investors should worry about this. Prudential has long suffered from institutional arrogance, and its overwhelming hubris has prompted it to embark on two failed mega-mergers that were both handled with breathtaking incompetence. The most recent attempted deal, with the Asian insurer AIA, now looks like it might have been a good one (it's doing very well). Unfortunately Prudential's directors didn't give any impression that they could pull off a deal that would have doubled the company's size.

The existing Asian businesses are, however, positively zinging – in the first-quarter trading update Pru revealed that they had grown by 22 per cent. Its fund management operations also turned in net inflows of £2.1bn.

The downside is that investors have to pay up for this. The shares trade at nearly twice the value of Pru's in-force book of businesses and on a multiple of 10.4 times earnings, with a prospective yield, 3.4 per cent, that doesn't even come close to its peers. The shares performed very strongly in the first part of the year, but have since eased a bit. They look like a decent investment. But I always ask the following question: would I put my money in this company. The answer with Prudential is no, because I wouldn't trust its directors not to make the sort of silly mistakes that have held the company back for years.

St James's Place Capital targets high-net-worth investors through an army of more than 1,000 financial advisers. It is two-thirds owned by Lloyds Banking Group, but how long that will last is anyone's guess. In terms of performance it is one of the best businesses Lloyds has in its portfolio. On valuation grounds the company is expensive at a shade above 15 times earnings while yielding just 3 per cent. However, I remain of the view that this is a stock that is worth holding.

The company has consistently outperformed the City's expectations and its wealthy client base is far more resilient to the squeeze than the rest of the country. They are more likely to save and, with the returns from cash so pitiful, they are more likely to save through equity linked products offering a decent margin. Hold.

Suggested Topics
News
peoplePaper attempts to defend itself
Voices
voicesWe desperately need men to be feminists too
Life and Style
food + drink
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
PROMOTED VIDEO
Life and Style
tech
News
Mike Tyson has led an appalling and sad life, but are we not a country that gives second chances?
peopleFormer boxer 'watched over' crash victim until ambulance arrived
Arts and Entertainment
Geena Davis, founder and chair of the Geena Davis Institute on Gender in Media
tv
News
i100
News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
Sport
John Terry, Frank Lampard
footballChelsea captain sends signed shirt to fan whose mum had died
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Rita Ora will replace Kylie Minogue as a judge on The Voice 2015
tv
News
i100
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
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
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

IT Project manager - Web E-commerce

£65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...

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...

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