Acquisitions show immediate benefits

Chesnara has announced its 1H'26 results. The figures were dominated by the acquisition of HSBC Life (UK), now Chesnara Life UK, which contributed for five months and increased group scale. OCG rose 79% to £96m, cash remittances were up 31% to £73m and AOP grew 46% to £31m, although acquisition effects and management actions supported much of the OCG growth. SII Own Funds increased to £976m, from £859m, while solvency, at 185%, exceeded the 180% pro forma indication. As previously indicated, the interim dividend increased 6% to 8.16p, including a one-off additional 3ppt. uplift.

• Acquisitions: The completion of the acquisition of Chesnara Life UK brought immediate financial benefits, with £51m of immediate OCG and a £79m gain added to SII Own Funds. Progress is being made towards the purchase of Scottish Widows Europe around the year-end.
• Estimates: The gains from Chesnara Life UK led to figures that were well ahead of our estimates, although our OCG estimate for 2027 is almost unchanged. We have increased our 2026E OCG from £99m to £146m and our net SII Own Funds per share from 282p to 312p.
• Valuation: With a price at 1.1x of its forecast post-transaction net SII Own Funds, Chesnara is trading a little above its asset value. However, a prospective dividend yield of 6.6%, with good prospects of continued growth, will be attractive to many investors, in our view.
• Risks: Ultimately, the company remains tied to movements in financial markets and adverse developments in operational areas. Making a large acquisition also brings some execution risk, but Chesnara has good experience in managing smaller deals successfully.
• Investment summary: Chesnara has three pillars for delivering value, under a responsible risk-based management. A close analysis reveals that Chesnara is making good progress in delivering these pillars. In our opinion, the yield appears high for a dividend that is both secure and growing.