Showing good operational progress

Chesnara has announced its 2025 results. The headline figures were presented on a new basis, with operating capital generation (OCG), cash remittances and adjusted operating profit replacing the previous measures. The new KPIs showed a strong year, with good operating performance, higher cash generation and a much stronger balance sheet. OCG grew from £79m in 2024 to £94m in 2025, with SII Own Funds boosted by the capital raises ahead of the HSBC Life acquisition. The proposed final dividend of 14.80p is, as previously indicated, a 6% increase on the rebased 2024 figure.

• Acquisitions: There were no major updates on HSBC Life, now rebranded as Chesnara Life or Scottish Widows Europe. The former was completed in January 2026, while completion for the latter will take place around the end of 2026. Chesnara continues to work on possible new acquisitions.
• Estimates: The new metrics mean that there is a change from previous years. We focus on the OCG alongside SII Own Funds. We introduce forecasts of £99m for the former in 2026 and £112m in 2027. Gains on the transactions will boost Own Funds by over £100m in 2026E.
• Valuation: With a price at 1.0x of its forecast post-transaction Net SII Own Funds, Chesnara is trading around its asset value. However, a prospective dividend yield of 8.0%, with good prospects of continued growth, 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 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.