Hansard – secure yield, scope for growth

Profitable international savings expert Hansard Global offers a secure yield underpinned by strong cash flows as well as scope for growth on good margins. Yet in spite of its excellent trading record and income credentials, its shares languish at a curious discount to ‘embedded value’.

Floated on the Full List at the end of 2006 and operating out of the Isle of Man and Irish Republic, Hansard is a specialist long-term savings provider, offering tax-efficient, flexible investment products, within a life assurance policy wrapper, designed to attract affluent investors across the globe.

Its low-risk business model involves distribution of products through financial services intermediaries, IFAs or the retail arms of financial institutions. Truly global in scope, the company has more than 540 intermediaries servicing over 43,000 policyholders in 170 or more countries. Its ‘Hansard OnLine’ web platform offers IFAs support and efficiency and enables high net-worth individuals (HNWIs) to view their policies and investment performance ‘24/7’.

‘Simply put, we make money’, enthuses CFO Vince Watkins. ‘All we do is get intermediaries to write business for us.’ Making money from fees and commissions from initial investments, fund switching and investment administration, Hansard is after margin rather than volume and enjoys both regular premium and single premium (one-off lump sum) business. ‘We won’t write business if it is not profitable’, Watkins adds.

Regular premiums are more profitable than single premiums and offer high levels of repeat business. This is because, although clients can– and do – switch their investments, the appeal of the life wrapper means they rarely change administrator.

Watkins does concede that recent rumblings in financial markets have slowed the single premium business short term, although the market will inevitably come back: ‘In these volatile markets, people are reluctant to invest.’

Annual numbers to June demonstrated Hansard’s robustness, with pre-tax profits improving to £23.6 million (2007: £19.7 million) and assets under administration holding up at £1.14 billion.

Significantly, the “European embedded value (EEV)” of the group grew by 11.5 per cent to £243 million. This growth in EEV, an insurance industry metric for valuing businesses based on discounted cash flow, meant EEV per share increased to 177.1p (2007: 158.8p), well north of the current share price. And while new business reduced to £33.7 million (2007: £35.5 million), new business margins held up at 7.8 per cent (2007: 8.3 per cent).

Having swelled EPS by more than 18 per cent to 17p, Hansard Global, which had already paid out a £6.9 million special dividend during the year, lifted the final dividend by a penny to 7p, for a 20 per cent hike in the total payout to 12p per share. Strongly cash generative – Hansard closed the year with almost £60 million cash in the coffers – the company looks to pay out 70 per cent of its post-tax profits in dividends and further special dividends could be on the cards.

Short-term volatility represents a challenge for Hansard, although positive trends play into the hands of the group, whose ‘biggest markets are South America – Brazil, Mexico, Argentina – and Taiwan in the Far East’. As of December last year, global HNWI wealth totalled US$40.7 trillion, up 10 per cent year on year, with average HNWI wealth surpassing $4 million for the first time ever. Moreover, emerging markets, in particular Latin America and the Middle East (an area on which management is giving increasing focus) scored the greatest regional HNWI gains in terms of population, which augurs well for the group’s growth in these regions.

A growth company with serious income credentials, shares in Hansard have fallen from a 52-week peak of 286.75p to just 123p, with illiquidity one possible factor constraining its rating.

Nevertheless, investors able to get their hands on the shares, which should trade at a premium rather than a discount to embedded value, should do so, joining the likes of Schroder Investment and F&C Asset Management on the shareholder list.