Insurer Resolution has edged up 0.2p to 194.7p despite the departure of Evelyn Bourke, chief executive of its Friends Life heritage business (the run-off vehicle of the group), who will reportedly join Bupa. Analyst Eamonn Flanagan at Shore Capital said the news was disappointing for the company:
We regard Evelyn very highly indeed and view her departure from Resolution, and Heritage in particular, as a severe blow to the business. To us, the key aspect of the Resolution investment case is predicated on the cash generative characteristics of Heritage, especially as we remain unconvinced by the potential and profitability of the new business offering of Resolution. To this end, Evelyn's expertise in this area was crucial. A great win for Bupa, a big and bad loss for Resolution.
We reiterate our hold recommendation with the departure of Evelyn Bourke possibly symptomatic of more deep-rooted issues with the business.
Meanwhile analysts at Jefferies said a possible special dividend from the business could be put on hold. Analyst Abid Hussain attended a dinner with Friends Life chief executive Andy Briggs and said:
The special dividend is unlikely to be announced with half year results, in our view. We believe the economic capital position is unlikely to have improved significantly since the year-end as the benefit of narrower credit spreads and retained earnings is partially offset by weaker equity markets and lower gilt yields. Management is clear in that it intends to improve the economic capital and reduce volatility before considering a return of capital to shareholders. In our view this makes any potential return of capital at the half year unlikely if markets remain at current levels.
[Elswhere] the FSA is set to rule on whether FTSE 100 corporates can keep a premium listing on the London Stock Exchange (i.e. remain a FTSE 100 company) if the business is effectively run by external managers with no direct accountability to shareholders, as is the case with the advisory company set-up by Clive Cowdery which is contractualised to advise the Resolution board. In our opinion, a negative ruling in early July will result in negative sentiment for the stock, but in reality the likely transition arrangements coupled with the targeted 2014 exit strategy may make this a non-event. Management will ultimately defend the premium listing.
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