Just Group remains attractive after strong full year trading update and confident outlook

More pension schemes are expected to bring forward their defined benefit de-risking plans

Just Group (JUST) 86p

Gain to Date: 13%

We highlighted the attraction of annuities and lifetime mortgages specialist Just Group (JUST) on 1 December 2022 based on its underappreciated transformation to positive cash generation and predictable cash flows.

With the bulk annuities market predicted to complete more than £600 billion worth of deals over the next decade according to consultant Lane Clark & Peacock, Just Group is well positioned to capture more of the market.

Pleasingly, the shares have moved up nicely, reflecting momentum in the business and stronger than expected trading.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

In early March the company delivered knock-out fiscal 2022 numbers with adjusted operating profit up 41% to £336 million which was way ahead of analysts’ expectations.

Higher interest rates have improved pension scheme funding levels ‘materially’, and strong deal momentum in the back half of 2022 has continued into 2023 with the firm signing its largest transaction to date at £513 million this month.

Strong trading drove organic capital generation of £134 million which Jefferies estimates was three times the consensus expectation and allowed the firm to increase the full year dividend by 15% to 1.73p per share.

The company reiterated confidence in achieving its 15% target growth in operating profits per annum on average over the next three years.

Analysts at JPMorgan Cazenove suggested the firm’s £6 billion defined benefit pension pipeline meant there was ‘upside risk’ to the chief executive’s forecast.

WHAT SHOULD INVESTORS DO NEXT?

While the shares have got off to a great start since we highlighted them as attractive, there is arguably more upside to go.

Analysts have increased their 2023 earnings estimates by around 10% since the beginning of the year which should continue to be supportive.

The shares trade on a lowly four times 2023 forecast earnings per share and well below net tangible assets of 170p per share which looks too stingy. We remain positive. [MG]