Profiting from the Personal touch

Insurance and employee benefits concern Personal Group Holdings has performed strongly throughout the recession, so much so that it enjoyed a second consecutive record year for new business in 2009.

Debt-free and with an unbroken dividend growth record dating back to 2001, the AIM-quoted concern offers income and growth based on a personal marketing approach. Bossed by affable CEO Nigel Brittle, Personal provides an array of employee benefit packages, accident and health insurance, and other related products. It is best known for proffering tailored employee benefit packages, which it targets towards medium- to large-sized employers, many of them blue-chip, including Royal Mail, B&Q, Poundland, TNT and Specsavers.

These benefits help employers attract and retain good workers, offer an extra perk as part of the total pay package and boost the employers’ competitive standing in the marketplace, and have thus remained in demand throughout the downturn. Differentiating Personal from most other underwriters and benefit providers is the fact it sells its products through the workplace with the permission of ‘host’ employers.

Explains Brittle, ‘We have a contract with the company and actually go on site and give one-to-one presentations to the staff.’ He concedes that this sales approach results in a business model that is expensive and labour intensive ‘at the front end’. However, the benefits of the model include the high entry barriers it throws up, as well as the high levels of repeat business Personal has been able to build with more than 300 corporate customers.

Personal’s main profits engine is its Personal Hospital Plan (PHP), which it underwrites itself. In 2007, however, the company launched a Voluntary Group Income Protection (VGIP) scheme, designed to provide affordable income protection to skilled and semi-skilled workers. VGIP, which Brittle describes as ‘the second pillar of our unique offering, with hospital plans being the original pillar’, is underwritten by leading disability insurer UnumProvident, while Personal handles the enrolment with the help of its innovative flexible benefit software Perflex.

Encouragingly in 2009, Personal managed to deliver a buoyant increase in VGIP commission in those workplaces where it was offered, and Brittle’s brief for 2010 is to expand the number of VGIP programmes. Significantly, personal has just launched a VGIP version in partnership with healthcare giant BUPA that Brittle believes should underpin growth.

In terms of 2009 financials, Personal achieved excellent ‘adjusted’ pre-tax profits of £8.6 million (2008: £8.7 million), ahead of analysts’ forecasts, with the business benefiting from a lower-than-expected claims ratio, as well as record gross premium revenue, which increased by 7.3 per cent to £17.6 million. At year-end, the total number of policies in force was 221,792 (2008: 221,314), with a total annualised premium value of £18.8 million, up from £17.8 million a year earlier.

Even after lower investment income and a £3 million write-down of the value of Berkeley Morgan, the IFA and insurance broking business acquired five years ago that has been badly hit by the downturn and is now run as a cash cow, profit before tax increased 6 per cent to £5.5 million. With momentum behind Personal, house broker Cenkos has upgraded its profit estimate from £8.5 million to £8.7 million for 2010, with further profits progression to £9.4 million expected for 2011.

Based on forecast earnings of 20.8p and 22.3p, Personal shares are selling on forward multiples of 14.3 and 13.3, fairly undemanding for a resilient business with a strong profits track record. Moreover, with growing dividend payments of 17p and 17.6p likely over the next two years, the shares also offer a very attractive and sustainable yield of 5.7 per cent. In our view, they are a strong buy for income and growth.