Partnership Assurance has lost nearly a quarter of its value after a disappointing update.
The insurer, whose private equity backers floated the business in June at 385p a share, specialises in retirement annuities, said new business rose by 3% in the third quarter. But this was a marked slowdown on the 12% rise recorded in the first three months of the year and the 11% increase in the second quarter. It said it was on track to meet full year expectations for its operating profits, but added that the sales environment was "challenging." Chief executive Steve Groves warned:
Looking ahead we do not expect to see growth in our year-on-year retirement sales in the fourth quarter given that sales in the final quarter of 2012 benefitted materially from regulatory change, in particular the introduction of gender neutral pricing.
The company's shares are down 94.8p or 23% at 317.3p, and Eamonn Flanagan at Shore Capital said:
Partnership reported a marked slowdown in third quarter 2013 new business growth with sales up 3% in the discrete quarter, resulting in around 9% growth in the first nine months. The result reflected an increase of 5% in impaired annuity sales (against a market fall of around 15%) which offset a 28% fall in care products.
According to the group, the market remains challenging (note the recent new business figures from Resolution, Aviva and Legals which are all playing in this space) but Partnership reported an improvement in its new business margin as it sought to maintain its pricing discipline.
Trading at 3.5 times the historic embedded value as at the end of June 2013 (of 116p), with the premium over embedded value equating to around 18 times 2013 new business profits, this is not a cheap stock, in our view.
Panmure Gordon was more positive, keeping its buy recommendation although it did cut its price target from 582p to 550p. Analyst Barrie Cornes said:
[The statement] was in line with the guidance given at the interims. However there is a warning that market expectations for fourth quarter sales are too high and that these will need to be lowered. Having said that, the company expects to make 2013 consensus operating profit at £133m. It seems that post the disappointing interim sales figures, market expectations were not lowered enough. We have consequently lowered our 2013 sales forecast by 8% to £1333m and fourth quarter from £531m to £400m. Despite this, trading at a discount to the wider insurance sector we think that the shares are very attractive but trim our target price to reflect the short term disappointment.
Rival Just Retirement, which provides pensions to people with health problems and joined the market on Tuesday at 225p a share, fell 19.5p to 193.5p after the news from Partnership.
