A positive expansion in Benelux

Chesnara has announced that it is buying Scottish Widows Europe, a closed company with a book consisting of UK products that were sold, pre-Brexit, into Europe, primarily Germany. The consideration is €110m, which will be met from internal resources, notably the proceeds of last year’s Tier 1 bond issue. For this, it adds ca.€1.7bn of AuA and 46,000 policies. It also brings an estimated €250m of future cash generation as the book runs off, with €100m in the first five years. Scottish Widows Europe is based in Luxembourg. As a new country to Chesnara, synergies are limited, but it expands its strategic options going forward.

• Other acquisition news: The HSBC Life deal completed in January, as expected. Integration will take place over the course of 2026. This means that further UK-based deals can now be considered again. Chesnara estimates that it has ca.£100m of resources for additional deals.
• Estimates: With completion of the new deal taking place around the end of 2026, we have made no adjustments to our earnings or cashflow for the coming year. Our dividend forecasts are also unchanged. We have included a gain of £56m in the group Economic Value, taking our 2026E to £806m.
• Valuation: With a price at ca.93% of its forecast post-transaction Economic Value, Chesnara seems undervalued, in our view. A prospective dividend yield of 7.1%, with good prospects of continued growth, also suggests an undervalued stock, 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 there is substance underlying these aims. In our opinion, the discount to Economic Value looks wider than it should, and the yield appears high for a dividend that is both secure and growing.