Phoenix Group Shares Gain on Higher Cash-Generation Target

Phoenix Group Holdings Ltd., the U.K.’s biggest manager of closed life-insurance funds, rose to the highest in more than five months in London as it announced a six-year cash flow target that beat analysts’ estimates.

The company plans to generate 3.2 billion pounds ($5.1 billion) of cash by 2016, London-based Phoenix said today in a statement. It expects to reduce its leverage to less than 50 percent by the end of this year.

Phoenix, which buys books of life insurance contracts and profits when policies expire, plans to reduce its 2.3 billion-pound debt burden by generating cash from the policies it already owns.

“Significantly improved operational cash flow projection is not only materially above our own expectation, but also lowers debt risk,” Deutsche Bank AG analyst Oliver Steel, who has a “buy” rating on the stock, said in a note to clients today. “The net leverage ratio can be reduced organically to about 33 percent by end of 2016, removing the fear of a forced capital raise.”

The shares rose to 696.5 pence, the highest since Oct. 20. They were up 0.7 percent at 682.5 pence at 11:17 a.m. in London, valuing the insurer at about 1.2 billion pounds.

“We are confident in the prospects for 2011 and beyond and have set challenging new targets,” Chief Executive Officer Clive Bannister said in the statement. “We will continue to explore options with our lenders regarding the best structure and timing for the restructuring of our banking facilities.”

Dividend Plan

The insurer said in November it aimed to remove a cap on dividends imposed by its lenders before it makes future acquisitions of life-insurance policies.

Phoenix generated 734 million pounds of cash in 2010, compared with 716 million pounds the year before on a pro-forma basis. The company will pay a dividend of 42 pence a share, beating the 38 pence paid out for 2009.

Net income in 2010 fell to 30 million pounds, or 20.1 pence a share, from 95 million pounds, or 89.8 pence, in 2009.

Assets under management overseen by the firm’s Glasgow, Scotland-based Ignis fund unit increased by 600 million pounds to 67.5 billion pounds, more than offsetting 5.4 billion pounds of run-offs from the closed life funds.

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