Sun Life has delivered the goods

The Investment Column

Buoyant first-half new business figures from Sun Life yesterday seemed to justify the massive oversubscription of its eponymous parent's offer for sale last month. Unfortunately, while the insurance group has delivered the goods, the stock market has not. Shares in Sun Life & Provincial have remained below their 235p placing price since their return to the stock market last month after a four-year absence.

The group appears to have run into a host of problems, not the least investors' declining appetite for new issues. In such circumstances, an opportunistic flotation will not be well received by investors and Sun Life bears all the hallmarks of opportunism.

The group appears to have been thrown together over the last couple of years by its parent, the French insurance group Union des Assurances de Paris, which still owns 60 per cent of the equity. In 1994, the French paid pounds 267m for UAP Provincial, a general insurer that also owns Exeter Bank. Then last year, UAP paid pounds 527m for the outstanding 50 per cent of Sun Life, the UK's fourth-largest life insurer, which it did not own. The two were amalgamated with New Ireland, an Irish composite insurer.

The whole lacked obvious coherence to City investors and it also had the unhappy effect of saddling Sun with a general business just as the insurance cycle turns down. To cap it all, the group was offering none of the takeover potential that has been supporting the share price of others in the sector.

That said, the shares may be worth a second look, as yesterday's 2p uptick to 221p acknowledges. Total new busi-ness sales, up 19 per cent to pounds 144m in the first six months of the year, was a good result. It tends to confirm that the life and pensions market is indeed recovering from the blows over the past couple of years. It also shows that Sun's strength in the independent financial intermediaries sector is paying dividends again. The group's 8 per cent market share should eventually mean it is well placed in that market, which should do well as investors become more sophisticated and shy away from tied company representatives.

The problem has been that Sun's costs have been uncompetitive and it has lost market share, particularly to the mutual insurers. With luck, moves earlier this year to cut charges in areas like personal pensions, single premium pensions and flexible annuities should correct that. Underwriting losses on general insurance and higher interest charges will hit this year. Profits could fall to pounds 145m from last year's pounds 173m, but a forward yield of 5.6 per cent may support the shares. Hold.

Allders safe after duty-free sale

The planned departure of Allders' finance director, Tony Collyer, in September was welcomed by analysts yesterday; not because he was bad at his job, but for the more convoluted reason that it probably means the company is not planning anything too risky with the pounds 100m cash pile it now sits on since selling its duty-free arm to Swissair last month.

A stash of that size has been too great a temptation for many a company before and the indication that Allders will actually pay most, if not all of the cash back to shareholders was taken bullishly. The departure of Mr Collyer has also been taken to indicate a winding down of the head office function now that the group comprises no more than a chain of 13 department stores and 12 Allders At Home out-of-town sites.

It is a sad reflection on the quality of many managements that shareholders prefer to have their money handed back to them to make their own investment decisions than to allow the managers they have employed to spend it themselves. But it is perhaps not surprising that managers investing cash because they feel they have to rather than because they have lighted on a genuine opportunity tend to do so badly.

If Allders hands back most or all of the cash in the form of a share buy-back, the effect on earnings per share should be beneficial. There is plenty of mileage in taking the money off deposit and sharply reducing the number of shares over which any future earnings have to be spread.

By itself that might not be enough to justify what looks like a pretty demanding rating on brokers' admittedly tentative forecasts. But the shares at their current level are also underpinned by the trading outlook which, according to the chairman's statement at the recent extraordinary meeting, is bright, with sales from established stores ahead about 13 per cent so far this year.

The final reason for holding on is bid speculation. Without the drag of an international duty-free arm, Allders might well be an attractive morsel to a larger retail group. Keep holding until the picture becomes a little clearer.

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