Good 2023 results set platform for future progress

Chesnara has announced its 2023 results. Positive returns from equity markets and gains from acquisitions in the first half were somewhat offset by adverse changes to operating assumptions in the second. Economic Value profit of £59.1m marked a good turnaround from a loss of £85.1m in 2022. Economic Value of £524.7m was 2% higher than a year ago, reflecting the dividend payment and forex effects. The final dividend of 15.61p brought the full year up to 23.97p, a 3% increase over the previous year. Cash generation was good with base cash generation of £32.6m and commercial cash generation of £53.0m.

• Acquisitions: There was little incremental news on acquisitions, with the main item being the completion of the Part VII transfer of CASLP. Chesnara has been active in seeking deals, and it should be reassuring to investors that several have been rejected, as management wishes only to do the right deals.
• Estimates: A couple of operating lines were worse than expected, which has led to a downgrade to our estimates. The adjustments to new business and operating experiences/assumptions have led to downgrades of our 2024E EPS, to 33.8p from 38.6p. We have introduced 2025E EPS of 34.6p.
• Valuation: With a price at approximately 80% of its forecast Economic Value, Chesnara seems undervalued. A prospective dividend yield of 8.8%, with good prospects of continued growth, also suggests an undervalued stock.
• Risks: Ultimately, the company remains tied to movements in financial markets and adverse developments in operational areas. Having just come through a testing period for the latter, in particular, we can see how well Chesnara can manage these challenges.
• 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.