Showing good operational progress

Chesnara announced its 2024 results, which showed positive progress compared with 2023. The main features were positive market returns, offset by some mixed operational experience. Economic Value profit of £69.1m represented a 17% increase on the £59.1m in 2023. Economic Value increased to £531m, up slightly on £525m 12 months earlier, with a negative forex impact as well as dividend payment. Cash generation was excellent, with base cash increasing to £51.6m and commercial cash to £59.6m. The dividend, as expected, was increased by 3% to 24.69p. This is the 20th consecutive year of dividend increases.

• Acquisitions: There was an update on the second portfolio acquisition from Canada Life, with the gain increased by £3m to £11m due to better-than-expected cost efficiencies. The Part VII transfer of the Canada Life term-life portfolio was granted in February 2025 is now complete.
• Estimates: With net results better than we expected, and some expected efficiencies from the merger of the Netherlands businesses, we have raised our estimates. Our 2025E EPS is upgraded to 40.2p from 32.6p. We introduce a 2026E EPS of 41.4p.
• Valuation: With a price at ca.70% of its forecast Economic Value, Chesnara seems undervalued, in our view. A prospective dividend yield of above 10%, 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. Having just come through a testing period for the latter, in particular, we can see how well Chesnara is able to 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.

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