Phoenix Group Holdings plc operates in the long-term savings and retirement business in Europe. The company operates through four segments: UK Heritage, UK Open, Europe, and Management Services. It provides a range of pensions and savings products to support people across various stages of the savings life cycle. The company manages Heritage in-force life and pensions policies; and offers and manages long term savings and pensions products. Its products include with-profits and unit-linked funds, and annuities; and workplace pensions, and individual savings and retirement solutions. The company serves individuals, corporates, and employers. It has a strategic partnership with abrdn plc, TCS, and HSBC. Phoenix Group Holdings plc was founded in 1782 and is based in London, the United Kingdom.
Risks
As with any investment, investing in Phoenix Group Holdings carries a level of risk. Overall, based on the Phoenix Group Holdings' adjusted beta (i.e. 0.76), the degree of risk associated with an investment in Phoenix Group Holdings is 'medium'.
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. In addition, here, we have assumed that for an investment to be considered 'medium' risk, it must have a beta value of between 0.50 and 1.00. Further information about the beta ratings can be found in the appendix section of this report.
The key risks can be found below. For us, currently, the biggest risk to the valuation of the company relates to the strong competition for its products and services from a growing list of established and new competitors (i.e. competition risk).
Appendix
Economic links to cash flow patterns
| Cash flow type | Introduction | Growth | Shake out | Mature | Decline |
|---|---|---|---|---|---|
| Operating | - | + | +/- | + | - |
| Investing | - | - | +/- | - | + |
| Financing | + | + | +/- | - | +/- |
Beta risk profile
| Beta value | Risk rating |
|---|---|
| 0 to 0.50 | Low |
| 0.50 to 1.50 | Medium |
| 1.50 to 3.00 | High |
| 3.00 and above | Extremely high |
Phoenix adjusted beta calculation
| 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% |
| Value | Comment(s) | |
|---|---|---|
| Beta | 0.642647 | |
| Adjusted beta | 0.761765 |
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.[1] 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.[2] 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. |