Union blessed

BLUE CHIP

SINCE Norwich Union's July flotation, shareholders must have thought they were celebrating Christmas every month. Sold at 265p a share, they hit a high of 523p this month, before slipping back to 468p, after their maiden full-year results. Pre-tax profits of pounds 627m were ahead of the pounds 567m posted in the previous year. A net asset value of 260p was up 12 per cent.

However, the results came only in the middle of City forecasts, and there were some disappointments. UK statutory life profits grew a mere 2 per cent, a result of new business strains.

Other than this slight blemish, it was hard to find fault. Overseas, stringent cost-cutting saw a bounce back to profit, from losses of pounds 24m to a pounds 36m surplus.

The debate over Norwich's dependence on IFAs has yet to be resolved. As a distribution channel, it has benefits over in-house sales. But as the IFA market develops, there will be stronger pressures, which over time could lead to lower margins.

There is also the takeover premium on which the shares trade. Of its market capitalisation of pounds 9.5bn a whopping pounds 4.5bn is goodwill. Even given the company's attractions, it is unlikely a predator could justify paying much more. So if a predator emerges, any takeover premium is likely to be small. The Norwich seems assured of some good growth, but the financial services sector is trading on fancy multiples that stretch credulity. It is caught up in this phenomenon as much as any, and the risk of the price coming off is far higher than it was a few months ago.