Editing Phoenix Group Holdings plc (section)

== Appendix ==

=== Dividend Discount Model ===

As noted earlier in this report, research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach, so that's the approach that the Stockhub crowd suggests using to determine the estimated value of the company (the valuation based on the discounted cash flow approach can be found in the valuation section of this report); nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the discounted dividend valuation approach.

==== What's the expected return of an investment in Phoenix using the discounted dividend valuation approach? ====
The Stockhub crowd estimates that the expected return of an investment in Phoenix over the next five years is 134%, which equates to an annual return of 19%. In other words, an £1,000 investment in the company is expected to return £2,343 in five years time. The assumptions used to estimate the return figure can be found in the table below.

==== What are the assumptions used to estimate the return figure? ====
{| class="wikitable"
|+Key inputs
!Description
!Value
!Commentary
|-
|Which model do you want to use?
|Gordon growth model
|The CFA institute recommends using the Gordon growth model (GGM) for companies with stable and predictable dividend policies.
|-
|What is the expected dividend in the next period (i.e., the next year)?
|53.75p
|Phoenix's most recent full-year dividend is 52.65p (FY23). Multiply that by the below growth rate (1.75%) equates to 53.75p per share.
|-
|What is the required rate of return or cost of equity?
|8.64%
|The assumptions for this can be found in the cost of equity table in the appendix of this report.
|-
|What is the expected growth rate of dividends?
|1.75%
|Since Phoenix's inception, its dividend CAGR is 1.75%, so the Stockhub crowd suggests using that amount here.
|-
|Which financial forecasts to use?
|The Stockhub crowd
|The only available forecasts are the ones that are supplied by the Stockhub crowd (the forecasts can be found in the financials section of this report), so the Stockhub crowd suggests using those.
|-
|What's the current value of the Phoenix company?
|£5.03 billion
|As at 16th November 2024, the current value of its company at £5.03 billion.<ref name=":9">https://www.telegraph.co.uk/business/2023/06/13/freetrade-stock-trading-start-up-valuation-plunge/</ref>
|-
|Which time period do you want to use to estimate the expected return?
|Between now and five years time
|The Stockhub crowd suggests that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time.
|}

==== Sensitivity analysis ====
The main inputs that result in the greatest change in the expected return of the Phoenix investment are, in order of importance (from highest to lowest):   

#The expected growth rate of dividends (the default rate is 1.75%);
#The expected dividend amount in the next period (the default amount is 53.75p); and
#The required rate of return or cost of equity (the default rate is 8.64%).

The impact of a 50% change in those main inputs to the expected return of the Phoenix investment is shown in the table below.

{| class="wikitable sortable"
|+Phoenix investment expected return sensitivity analysis
!Main input
!50% worse 
!Unchanged
!50% better
|-
|The expected growth rate of dividends
|75%
|134%
|413%
|-
|The expected dividend amount in the next period
|17%
|134%
|251%
|-
|The required rate of return or cost of equity
|106%
|134%
|171%
|}

=== Relative valuation approach ===
As noted earlier in this report, research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach, so that's the approach that the Stockhub crowd suggests using to determine the estimated value of the company (the valuation based on the discounted cash flow approach can be found in the valuation section of this report); nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the relative valuation approach.

==== What's the expected return of an investment in Phoenix using the relative valuation approach? ====
The Stockhub crowd estimates that the expected return of an investment in Phoenix over the next five years is 4044%, which equates to an annual return of 111%. In other words, an £1,000 investment in the company is expected to return £5044 in five years time. The assumptions used to estimate the return figure can be found in the table below.

==== What are the assumptions used to estimate the return figure? ====
{| class="wikitable"
|+Key inputs
!Description
!Value
!Commentary
|-
|Which type of multiple do you want to use?
|Growth-adjusted EV/sales
|For the numerator, the Stockhub crowd believes that to account for the different financial leverage levels of its peers, it's best to use enterprise value (EV), rather than price. For the denominator, the Stockhub crowd believes that because it expects Phoenix to reinvest almost all of its revenue back into the business over the five year forecast period and therefore its earnings are expected to be abnormally low over the period, it's best to use sales. Accordingly, the Stockhub crowd suggests valuing its company using the EV/sales ratio. However, the Stockhub crowd thinks that to take into account the different business lifecycle stages of its peers, the most suitable valuation multiple to use is the growth-adjusted EV/sales multiple, rather than the EV/sales multiple.
|-
|In regards to the growth-adjusted EV/sales multiple, for the sales figure, which year to you want to use?
|Year 5
|The Stockhub crowd suggests that with sales forecast to grow exponential over the five year forecast period, it's best to use forward-looking data, rather than historic data.
In regards to the growth-adjusted EV/sales multiple, for the sales figure, the Stockhub crowd suggests that in order to account for the forecasted exponential growth of the business, it's best to use one at the end of the forecast period (i.e. Year 5).
|-
|In regards to the growth-adjusted EV/sales multiple, for the sales growth figure, which year(s) do you want to use?
|Year 6, from now
|The Stockhub crowd suggests that for the sales growth figure, it's best to use Year 6.
|-
|In regards to the growth-adjusted EV/sales multiple, what multiple figure do you want to use?
|0.19x
|In the Stockhub crowd's view, Phoenix closest peers are AJ Bell, Hargreaves Lansdown, Robinhood Markets, Inc, Avanza Bank Holding AB and The Charles Schwab Corporation.
|-
|Which financial forecasts to use?
|The Stockhub crowd
|The only available forecasts are the ones that are supplied by the Stockhub company (the forecasts can be found in the financials section of this report), so the Stockhub crowd suggests using those.
|-
|What's the current value of Phoenix Group Holdings?
|£225 million
|As at 13th June 2023, the current value of its company at £225 million.<ref name=":9">https://www.telegraph.co.uk/business/2023/06/13/freetrade-stock-trading-start-up-valuation-plunge/</ref>
|-
|Which time period do you want to use to estimate the expected return?
|Between now and five years time
|The Stockhub crowd suggests that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time.
|}

==== Sensitivity analysis ====
The main inputs that result in the greatest change in the expected return of the Phoenix investment are, in order of importance (from highest to lowest):   

#The growth-adjusted EV/sales multiple (the default multiple 0.19);
#Phoenix Year 5 sales figure (the default figure is £777 million); and
#Phoenix Year 6 sales growth rate (the default rate is 63%).

The impact of a 50% change in those main inputs to the expected return of the Phoenix investment is shown in the table below.

{| class="wikitable sortable"
|+Phoenix investment expected return sensitivity analysis
!Main input
!50% worse 
!Unchanged
!50% better
|-
|The growth-adjusted EV/sales multiple
|1972%
|4044%
|6116%
|-
|Phoenix Year 5 sales figure
|1972%
|4044%
|6116%
|-
|Phoenix Year 6 sales growth rate

|1972%
|4044%
|6116%

|}

=== Dividend ===
{| class="wikitable"
|+Dividends
!
!Interim
!Final
!Total
!Change (%)
|-
|2024
|0.2665
|
|0.2665
|
|-
|2023
|0.2600
|0.2665
|0.5265
|4%
|-
|2022
|0.2480
|0.2600
|0.5080
|4%
|-
|2021
|0.2410
|0.2480
|0.4890
|3%
|-
|2020
|0.2340
|0.2410
|0.4750
|1%
|-
|2019
|0.2340
|0.2340
|0.4680
|2%
|-
|2018
|0.2260
|0.2340
|0.4600
| -8%
|-
|2017
|0.2510
|0.2510
|0.5020
| -1%
|-
|2016
|0.2670
|0.2390
|0.5060
| -5%
|-
|2015
|0.2670
|0.2670
|0.5340
|0%
|-
|2014
|0.2670
|0.2670
|0.5340
|0%
|-
|2013
|0.2670
|0.2670
|0.5340
|12%
|-
|2012
|0.2100
|0.2670
|0.4770
|14%
|-
|2011
|0.2100
|0.2100
|0.4200
|0%
|-
|2010
|0.2100
|0.2100
|0.4200
|
|-
|2009
|
|0.1527
|0.1527
|
|}
{| class="wikitable"
|+Dividend
!
!Mean
!Median
!Mode
|-
|Since inception
|2%
|1%
|0%
|-
|Since the last five years
|3%
|3%
|#N/A
|-
|Since the last three years
|3%
|4%
|#N/A
|}

===Economic links to cash flow patterns ===
{| class="wikitable"
|+Economic links to cash flow patterns
|-
!Cash flow type!!Introduction!!Growth!!Shake out!!Mature!!Decline
|-
|Operating|| style="background: red; color: white;" |-|| style="background: green; color: white;" |+
| style="background: orange; color: white;" | +/-|| style="background: green; color: white;" |+|| style="background: red; color: white;" |-
|-
|Investing|| style="background: red; color: white;" |-|| style="background: red; color: white;" |-|| style="background: orange; color: white;" |+/-|| style="background: red; color: white;" |-
| style="background: green; color: white;" | +
|-
|Financing|| style="background: green; color: white;" |+|| style="background: green; color: white;" |+|| style="background: orange; color: white;" |+/-|| style="background: red; color: white;" |-|| style="background: orange; color: white;" |+/-
|}

=== Beta risk profile ===
{| class="wikitable"
|+
!Beta value
!Risk rating
|-
|style="background: green; color: white;" |0 to 0.50
|style="background: green; color: white;" | Low
|-
|style="background: orange; color: white;" | 0.50 to 1.50
|style="background: orange; color: white;" | Medium
|-
|style="background: red; color: white;" | 1.50 to 3.00
|style="background: red; color: white;" | High
|-
|style="background: purple; color: white;" | 3.00 and above
|style="background: purple; color: white;" | Extremely high
|}

=== Phoenix adjusted beta calculation ===
{| class="wikitable"
|+
!Date
!iShares MSCI World ETF unit price (USD)
!Phoenix share price (GBP)
!iShares MSCI World ETF unit price change (%)
!Phoenix share price change (%)
|-
|01/11/2019
|96.76
|745.50
|
|
|-
|01/12/2019
|98.78
|749.00
|2.09%
|0.47%
|-
|01/01/2020
|97.73
|758.00
| -1.06%
|1.20%
|-
|01/02/2020
|89.67
|691.20
| -8.25%
| -8.81%
|-
|01/03/2020
|77.93
|626.60
| -13.09%
| -9.35%
|-
|01/04/2020
|86.36
|601.00
|10.82%
| -4.09%
|-
|01/05/2020
|90.70
|616.20
|5.03%
|2.53%
|-
|01/06/2020
|92.14
|644.00 
|1.59%
|4.51%
|-
|01/07/2020
|96.65
|658.60
|4.89%
|2.27%
|-
|01/08/2020
|102.96
|692.00 
|6.53%
|5.07%
|-
|01/09/2020
|99.52
|688.20
| -3.34%
| -0.55%
|-
|01/10/2020
|96.53
|662.40
| -3.00%
| -3.75%
|-
|01/11/2020
|108.94
|716.80
|12.86%
|8.21%
|-
|01/12/2020
|112.41
|700.60
|3.19%
| -2.26%
|-
|01/01/2021
|111.49
|674.80
| -0.82%
| -3.68%
|-
|01/02/2021
|114.27
|710.00
|2.49%
|5.22%
|-
|01/03/2021
|118.49
|734.20
|3.69%
|3.41%
|-
|01/04/2021
|123.61
|711.40
|4.32%
| -3.11%
|-
|01/05/2021
|125.60
|735.60
|1.61%
|3.40%
|-
|01/06/2021
|126.57
|676.40
|0.77%
| -8.05%
|-
|01/07/2021
|128.83
|679.40
|1.79%
|0.44%
|-
|01/08/2021
|132.02
|623.40
|2.48%
| -8.24%
|-
|01/09/2021
|126.46
|645.60
| -4.21%
|3.56%
|-
|01/10/2021
|133.84
|656.60
|5.84%
|1.70%
|-
|01/11/2021
|131.10
|640.20
| -2.05%
| -2.50%
|-
|01/12/2021
|135.32
|653.20
|3.22%
|2.03%
|-
|01/01/2022
|128.32
|660.20
| -5.17%
|1.07%
|-
|01/02/2022
|124.58
|618.60
| -2.91%
| -6.30%
|-
|01/03/2022
|128.16
|614.00
|2.87%
| -0.74%
|-
|01/04/2022
|117.42
|609.00
| -8.38%
| -0.81%
|-
|01/05/2022
|117.94
|637.60
|0.44%
|4.70%
|-
|01/06/2022
|106.88
|590.40
| -9.38%
| -7.40%
|-
|01/07/2022
|115.57
|643.80
|8.13%
|9.04%
|-
|01/08/2022
|110.28
|602.40
| -4.58%
| -6.43%
|-
|01/09/2022
|99.95
|526.80
| -9.37%
| -12.55%
|-
|01/10/2022
|107.42
|542.40
|7.47%
|2.96%
|-
|01/11/2022
|115.44
|588.80
|7.47%
|8.55%
|-
|01/12/2022
|109.25
|608.60
| -5.36%
|3.36%
|-
|01/01/2023
|117.01
|640.80
|7.10%
|5.29%
|-
|01/02/2023
|113.98
|633.40
| -2.59%
| -1.15%
|-
|01/03/2023
|117.67
|546.40
|3.24%
| -13.74%
|-
|01/04/2023
|119.79
|591.80
|1.80%
|8.31%
|-
|01/05/2023
|118.60
|552.40
| -0.99%
| -6.66%
|-
|01/06/2023
|124.52
|531.80
|4.99%
| -3.73%
|-
|01/07/2023
|128.54
|550.20
|3.23%
|3.46%
|-
|01/08/2023
|125.70
|521.00
| -2.21%
| -5.31%
|-
|01/09/2023
|120.17
|482.20
| -4.40%
| -7.45%
|-
|01/10/2023
|117.11
|453.80
| -2.55%
| -5.89%
|-
|01/11/2023
|127.78
|465.20
|9.11%
|2.51%
|-
|01/12/2023
|133.02
|535.20
|4.10%
|15.05%
|-
|01/01/2024
|134.20
|505.40
|0.89%
| -5.57%
|-
|01/02/2024
|140.28
|497.30
|4.53%
| -1.60%
|-
|01/03/2024
|144.91
|552.60
|3.30%
|11.12%
|-
|01/04/2024
|139.17
|489.80
| -3.96%
| -11.36%
|-
|01/05/2024
|145.71
|496.20
|4.70%
|1.31%
|-
|01/06/2024
|147.49
|521.50
|1.22%
|5.10%
|-
|01/07/2024
|149.97
|547.00
|1.68%
|4.89%
|-
|01/08/2024
|154.18
|565.50
|2.81%
|3.38%
|-
|01/09/2024
|156.91
|559.50
|1.77%
| -1.06%
|-
|01/10/2024
|153.73
|491.20
| -2.03%
| -12.21%
|-
|01/11/2024
|160.13
|492.00
|4.16%
|0.16%
|}
{| class="wikitable"
|+Phoenix beta and adjusted beta value
!
!Value
!Comment(s)
|-
!Beta
|0.642647
|
|-
!Adjusted beta
|0.761765
|
|}

=== Cost of equity ===
{| class="wikitable"
|+Cost of equity (%)
!Input
!Input value
!Additional information
|-
|Risk-free rate (%)
|4.473%
|Here, the risk free rate is the US 30 year treasury bond, and is calculated as at 11th November 2024.<ref>https://www.marketwatch.com/investing/bond/tmubmusd30y?countrycode=bx</ref> Research suggests that for the risk-free rate, it's best to use one that has the same or similar maturity to the estimated remaining lifespan of the company. Here, we have assumed that the estimated lifespan of the company is 50 years, so we have used the longest maturity, which is 30 years.
|-
|Adjusted beta
|0.76
|Here, to estimate the adjusted beta, we used the iShares MSCI World ETF to represent the market portfolio; and in terms of the time period and frequency of observations, we used five years of monthly data (i.e. 60 observations in total), which is supported by a study and is the most common choice. The beta value in a future period has been found to be on average closer to the mean value of 1.0, and because valuation is forward-looking, it is logical to adjust the raw beta so it more accurately predicts a future beta.
|-
|Equity risk premium (%)
|5.48%
|Here, the equity risk premium is in relation to the global region, and is calculated as at 1st July 2023.<ref>https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html</ref> Research suggests that for the region of equity risk premium, it's best to use one that is the same or similar to the region of the beta market portfolio. Here, the region of the beta market portfolio is the world/global, so we have used the world/global region for the equity risk premium.
|-
|Cost of equity (%)
|8.64%
|Cost of equity = Risk-free rate + Beta x Equity risk premium.
|}