Phoenix Group Holdings plc

Phoenix Group Holdings is committed to helping people achieve a secure financial future, offering innovative retirement solutions and long-term savings products.

The company operates as a leading UK life and pensions provider, specialising in retirement solutions, long-term savings, and investment management. Phoenix prioritises the delivery of value-driven investments with a strong emphasis on environmental, social, and governance (ESG) principles, ensuring that its investment portfolios align with the evolving needs of its customers and society. Phoenix also focuses on managing long-term liabilities and capital efficiency, seeking to provide sustainable financial growth while supporting the retirement security of its policyholders.

Assuming Phoenix Group maintains a steady market position in the life insurance and pensions sectors, with modest growth in its asset management services, the expected return of an investment in the company over the next five years is positive 16%, which equates to an annual return of 3.1%. In other words, an £100,000 investment in Phoenix Group is expected to return £116,000 in five years' time.

The degree of risk associated with an investment in Phoenix Group is ‘moderate’, with the shares having a beta that is 22% below the market (0.78 vs. 1). Additionally, Phoenix Group’s shares show a ‘medium’ level of liquidity, as evidenced by its bid-ask margin of 0.02%.

Accordingly, based on the assumptions provided on the Stockhub platform, an investment in the company is considered to be a ‘suitable’ one for you if, among other criteria, your required:

• Return level is 3.1% per year or more in absolute terms;
• Risk level is 22% below the market risk level;
• Time horizon is five years or longer;
• Bid-ask margin is 0.02% or more; and/or
• Objective is to invest in a stable, long-term provider of pensions and insurance solutions that aligns with responsible investment principles.

Fun fact: Phoenix Group Holdings was founded in 1782 and has grown into one of the UK’s largest providers of long-term savings and retirement offerings. It primarily focuses on closed life funds and the acquisition of life insurance businesses.

Operations

How did the idea of the company come about?

Phoenix Group Holdings was created with the aim of acquiring and managing closed life insurance and pension funds. Founded in 2009, it evolved from the Phoenix Assurance Company, which had traditionally provided life insurance. The modern group focused on acquiring legacy insurance portfolios—companies that no longer wrote new policies but still had substantial liabilities. By acquiring underperforming insurers, Phoenix aimed to improve efficiency, optimise capital, and unlock value from these closed books, growing into a major consolidator in the UK life insurance sector.

What's the mission of the company?

The mission of Phoenix Group Holdings is to deliver long-term value for its shareholders, policyholders, and other stakeholders by efficiently managing and growing closed life insurance and pension businesses. The company focuses on maximising the value of legacy insurance portfolios through operational improvements, capital optimisation, and the responsible management of policyholder liabilities. Their goal is to ensure financial security for policyholders while achieving sustainable, profitable growth for investors.

What are the main offerings of the company?

Phoenix Group Holdings primarily offers closed-book life insurance and pension solutions. Their key offerings include:

1. Life Insurance: Managing legacy life insurance policies that are no longer open to new customers, focusing on optimising the value of existing portfolios.
2. Pension Schemes: Overseeing pension funds and annuities for individuals and institutions, ensuring they are managed efficiently.
3. Asset Management: The company offers investment management services for the assets backing its insurance and pension liabilities.
4. Investment and Capital Management: Phoenix Group aims to enhance the value of its acquired portfolios through strategic capital management, risk optimisation, and operational efficiency.

These offerings are centered around managing closed insurance and pension books, with a focus on long-term value creation for policyholders and investors.

What makes the offerings unique?

What makes Phoenix Group Holdings' offerings unique is their focus on managing closed-book insurance and pension portfolios, businesses that no longer write new policies but still have significant liabilities. This specialisation is backed by key facts:

1. Specialisation in Closed-Book Management: Phoenix Group is one of the largest consolidators of closed life insurance and pension books in the UK, managing over £300 billion in assets. It has acquired major portfolios, including from Standard Life (2018) and ReAssure (2020), demonstrating its leadership in this niche market.
2. Operational Efficiency: Phoenix has a proven track record of improving operational performance. Following the Standard Life acquisition, the company implemented cost-saving measures that led to over £50 million in annual savings. Additionally, its £1 billion cost-saving program announced in 2020 highlights its focus on streamlining operations and improving efficiency across its legacy portfolio.
3. Capital and Liability Optimisation: Phoenix utilises advanced capital management techniques, such as those seen in the £1.1 billion pension scheme buyout from Standard Life, which helped reduce risk and unlock value. The group also manages liabilities efficiently through Solvency II capital management, ensuring long-term sustainability and optimised returns.
4. Focus on Long-Term Stability: Phoenix’s commitment to long-term financial security for policyholders is reflected in its 200% solvency ratio, well above regulatory requirements. The group also reported 9% growth in operating profit in 2023, alongside a consistent dividend track record, underscoring its ability to provide steady returns to shareholders while meeting policyholder obligations.

These factors combine to make Phoenix Group’s offerings distinct, focusing on operational efficiencies, capital optimisation, and long-term stability in the management of legacy insurance and pension portfolios.

From which place(s) are the offerings able to be purchased?

Phoenix Group's offerings are primarily available to existing policyholders and pension plan participants through their legacy insurance portfolios. Since the company focuses on managing closed books (policies no longer open for new customers), its products are not available for purchase by new clients. Instead, Phoenix manages and services existing life insurance and pension policies that were previously sold by acquired businesses.

Their offerings are available in the UK, where they have a significant presence, and the company’s services are accessible to policyholders through their digital platforms, customer service teams, and financial advisors. Additionally, Phoenix Group has operations in various European markets through acquired businesses. However, new policy purchases are not part of their current business model.

From which place(s) are the offerings promoted?

Phoenix Group's offerings are primarily promoted in the UK and Ireland, where it has a strong presence. The company's promotional efforts focus on:

1. Existing Customers: Phoenix promotes its services and offerings to current policyholders through direct communications, customer support, and digital channels, emphasising the management of legacy insurance and pension portfolios.
2. Investor Relations: Phoenix also promotes its financial products and services to investors, showcasing its strategy of acquiring and managing closed books, through annual reports, investor presentations, and shareholder updates.
3. Acquired Businesses: The company may also promote its offerings indirectly through the brands of acquired insurers, such as Standard Life and Scottish Widows, which still serve policyholders under the Phoenix Group umbrella.
4. Digital Platforms: Phoenix Group also uses its websites and digital platforms to communicate with both policyholders and investors, promoting its financial management strategies and policyholder services.

Overall, promotion is largely directed at existing stakeholders, given the closed-book nature of its business model.

What's the current strategy of the company?

Phoenix Group's current strategy focuses on sustainable growth, capital optimisation, and maximising the value of legacy insurance and pension portfolios. Key aspects of the strategy include:

1. Acquisitions and Consolidation: Phoenix continues to grow by acquiring and managing closed-book life insurance and pension portfolios, enhancing its scale and operational efficiency. They focus on integrating acquired businesses, such as Standard Life, and improving their profitability.
2. Operational Efficiency: The group aims to optimise its cost base, improve capital efficiency, and maximise returns from its existing portfolio of life insurance and pension policies. This includes enhancing digital services and improving customer experience for policyholders.
3. Responsible Capital Management: Phoenix focuses on managing its capital efficiently to support growth and provide attractive returns to shareholders. This includes maintaining a strong balance sheet and ensuring adequate liquidity.
4. Sustainability and Responsible Investment: The company is increasingly focused on aligning its operations with sustainable practices, including responsible investing, to meet evolving regulatory requirements and enhance long-term value.
5. Customer-Centric Approach: While not writing new policies, Phoenix aims to deliver strong value for existing policyholders by managing their policies effectively, providing transparent communications, and focusing on delivering on the promises made to them.

Overall, Phoenix Group's strategy is centered around strengthening its position as a leading consolidator of closed life and pension books, while ensuring long-term growth and value creation for both policyholders and investors.

Competition

Phoenix Group, as a leading life insurance and pension provider primarily focused on managing closed insurance books and pensions in the UK, faces competition from companies with similar business models or overlapping areas in insurance, asset management, and retirement solutions. Key competitors include:

1. Legal & General Group (L&G): L&G competes with Phoenix in life insurance, pensions, and retirement products. It also has significant expertise in asset management and bulk annuities, making it a major player in managing large pension schemes.
2. Aviva: Aviva is another significant UK-based competitor in life insurance and pensions. Aviva provides services in retirement planning, life insurance, and asset management. Its focus on digital transformation and customer engagement is a strategic advantage.
3. Swiss Re (ReAssure): Phoenix acquired ReAssure from Swiss Re in 2020, a move that underscored the competitive landscape in closed life books. Swiss Re remains an indirect competitor, as it focuses on reinsurance and has relationships with other UK life insurers and closed-book specialists.
4. Standard Life (part of Phoenix) and Scottish Widows (Lloyds Banking Group): Scottish Widows competes in the pensions and life insurance markets. It also provides pension de-risking solutions and bulk annuity products, similar to Phoenix’s focus, especially through Standard Life.
5. M&G plc: M&G combines asset management with pension solutions and life insurance products. As an investment manager, it competes with Phoenix in asset management and pension scheme management. Its pension expertise is a key overlap with Phoenix’s retirement-focused services.
6. Rothesay Life: Rothesay Life is a specialist insurer focusing on bulk annuities and pension de-risking solutions. It’s a major player in managing pension liabilities, directly competing with Phoenix in acquiring large closed pension books.

Phoenix Group's core strategy centers around closed book acquisitions, bulk annuities, and retirement-focused services, which makes companies specialising in managing long-term pension liabilities and closed books its closest competitors. Additionally, the push toward digital transformation, asset management capabilities, and pension de-risking solutions is common among these firms, placing them in a tight competitive landscape.

Market

To understand Phoenix Group’s market opportunity, let’s look at its Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM), specifically in the context of its primary business lines, which include closed-book life insurance, open-book insurance, Bulk Purchase Annuities (BPAs), and retirement solutions.

1. Total Addressable Market (TAM)

• Definition: The TAM is the total revenue opportunity available if Phoenix Group could achieve 100% market share in all its target sectors.
• Market Size: The TAM for Phoenix includes:
  • The global life insurance market, especially in regions with significant closed-book insurance business (UK, Europe, some parts of North America).
  • The global pension market, as companies seek to offload pension liabilities via Bulk Purchase Annuities (BPAs).
  • The global retirement solutions and wealth management market, given the increasing demand for retirement products as populations age.
• Estimated TAM: For Phoenix, the TAM is likely in the trillions in GBP, as the global life insurance market alone is estimated to be worth several trillion dollars annually. However, for closed-book management and pension buyouts specifically, estimates suggest an addressable market in the hundreds of billions, particularly in Europe and North America, where regulatory and aging demographics drive demand.

2. Serviceable Available Market (SAM)

• Definition: The SAM represents the portion of the TAM that Phoenix Group could realistically service, given its specific focus and operational capabilities.
• Market Focus:
  • UK and European Closed-Book Life Insurance: Phoenix Group is one of the largest consolidators of closed-book policies in the UK and Europe. The closed-book market in Europe alone is estimated to hold £300 billion to £400 billion in assets under management.
  • Bulk Purchase Annuities (BPA): In the UK, the BPA market has seen significant growth, with estimates suggesting it’s worth around £30 billion annually. As more companies offload pension liabilities, this market is expected to grow.
  • UK Retirement and Wealth Solutions: Given its acquisition of Standard Life and expansion into the open-book market, Phoenix can also tap into the retirement solutions market, worth an estimated £1 trillion in the UK alone.
• Estimated SAM: For Phoenix, the SAM is likely in the hundreds of billions of pounds, focusing primarily on the UK and European closed-book life insurance market, BPAs, and retirement solutions.

3. Serviceable Obtainable Market (SOM)

• Definition: The SOM is the portion of the SAM that Phoenix Group can realistically capture, given competition, regulatory constraints, and its existing market share.
• Competitive Position:
  • Closed-Book Consolidation: Phoenix already holds a significant market share in the UK closed-book insurance market. Its scale, expertise, and established relationships position it to capture a substantial portion of this market. Realistically, Phoenix could maintain a 10-20% share of the UK and European closed-book market, equating to £30-60 billion.
  • BPAs: Phoenix is actively growing its presence in the BPA market. Given competition from other insurers like Legal & General, Phoenix might capture 5-10% of the BPA market, which could mean around £1.5-3 billion annually.
  • Retirement and Wealth Solutions: This is a competitive market with players like Aviva, Prudential, and Standard Life. Phoenix’s SOM here could be around 5%, or £50 billion, within the UK retirement solutions market.
• Estimated SOM: Combining these factors, Phoenix’s SOM might realistically be between £80 billion to £120 billion across its primary markets. This includes substantial market share in closed-book management, a growing foothold in BPAs, and a smaller but strategic presence in retirement solutions.

Summary of TAM, SAM, and SOM for Phoenix Group:

Metric	Market Size	Key Focus Areas
TAM (Total Addressable Market)	£1+ trillion	Global life insurance, pensions, retirement solutions
SAM (Serviceable Available Market)	£200-400 billion	UK and European closed-book, BPAs, UK retirement solutions
SOM (Serviceable Obtainable Market)	£80-120 billion	UK and European closed-book, BPAs, retirement solutions in the UK

Phoenix’s strengths in closed-book consolidation, its expanding BPA business, and retirement solutions provide it with a substantial and accessible market within the broader insurance and retirement sector. This focus allows it to capitalise on predictable cash flows from closed books and emerging opportunities in BPAs, while building a foothold in the growing retirement market.

Team

As of 17th November 2024, the key members of the leadership team at Phoenix Group Holdings include:

Board

Sir Nicholas Lyons – Chair of the Group Board

Nicholas has wide-ranging experience across the financial services industry, both in executive and non-executive roles. He started his career in banking at Morgan Guaranty Trust Company of New York UK (later JP Morgan LLP), where he held various roles including Assistant Vice President of Equity Capital Markets, he later moved to Lehman Brothers International Limited where he was Global Co-Head of Recruitment, Training and Career Development and Managing Director of the Financial Institutions Group. Nicholas has extensive Non-Executive Director (‘NED’) experience, including Chair of Miller Insurance Services LLP, Senior Independent Director of Pension Insurance Corporation plc and Catlin Group Limited and NED of Friends Life Group Limited and Convex Group Limited. Nicholas is a member of the Chartered Insurance Institute. Having taken a sabbatical to complete a year long term as Lord Mayor of the City of London, Nicholas returned to his role as Group Chair of the Board on 1 December 2023.

Andy Briggs – Group Chief Executive Officer

Andy joined Phoenix Group in 2020 with over 30 years of experience in the insurance industry. He has held senior executive roles across multiple business areas in the industry including CEO of UK Insurance and Global Life and Health at Aviva plc; CEO of Friends Life Group Limited; Managing Director of Scottish Widows; CEO of the Retirement Income Division at Prudential plc and Chair of the Association of British Insurers (‘ABI’). Andy is a Fellow of the Institute of Actuaries and also acts as the UK Government’s Business Champion for Older Workers.

Karen Green – Senior Independent Director

Karen has significant financial services experience. She has held a number of senior executive roles including Chief Executive Officer of Aspen UK (comprising the principal insurance and reinsurance companies of the Aspen Insurance Holdings), Principal of MMC Capital Ltd (now Stonepoint Capital LLC) and Director of Corporate Development of GE Capital Europe Ltd. Karen has significant NED experience, including as Chair of the Audit and Remuneration Committees at Admiral Insurance Group plc, a former Council member and Chair of the Investment Committee at Lloyd’s of London, NED at Great Portland Estates plc and Risk and Audit Committee Chairs at Miller Insurance Services LLP.

Eleanor Bucks – Independent Non-Executive Director

Since 2021, Eleanor has been Chief Investment Officer of Lloyd’s of London. Prior to this, she was at Legal & General plc holding several roles including: Chief Operating Officer of Legal & General Capital, Managing Director of Direct Investments and Real Assets and Chief Investment Officer of Legal & General Retirement. Eleanor serves as Chair on the suite of Lloyd’s Investment Platform funds and has held executive directorships as Chair of Legal & General Investment Management Alternative Investment Fund Manager and Director of Legal & General’s Single-Family Build-to-Rent business. Eleanor is a Fellow of the Institute of Actuaries.

Mark Gregory – Independent Non-Executive Director

Mark has 25 years of experience in the financial services industry. Most recently, Mark was CEO of Merian Global Investors Limited (‘Merian’). Preceding this, he held roles at Legal & General Group plc including: Group CFO, CEO of Savings and Managing Director of With Profits, at Asda Limited as the Divisional Director for Finance and the Business Development Director and at Kingfisher plc as a Senior Financial Analyst. His NED experience consists of roles as NED and Chair of the Risk Committee at Direct Line Insurance Group plc and NED at Entain plc and Merian.

Hiroyuki Iioka – Shareholder Nominated Director, MS&AD

Hiroyuki is the appointed representative of one of Phoenix Group’s major shareholders, MS&AD Insurance Group Holdings, Inc ('MS&AD'). He has over 35 years of experience and is currently Senior General Manager for the International Business Planning Department at MS&AD. His previous roles include General Manager for the Asian Life Insurance Business Department at Mitsui Sumitomo Insurance Company Limited (Japan) and Assistant General Manager for MSIG Holdings (Europe) Limited. Hiroyuki’s NED experience includes roles as NED of ReAssure Group plc, Mitsui Sumitomo Insurance (London Management) Limited and an Alternate NED of Challenger Limited (Australia). Hiroyuki is a Chartered Member of the Securities Analysts Association of Japan and Certified International Investment Analysts.

Katie Murray – Independent Non-Executive Director

Katie has over 30 years of experience gained across the financial services industry and is currently Group Chief Financial Officer (‘CFO’) of NatWest Group plc, having also acted as Deputy Group CFO. Prior to this, Katie spent a number of years at Old Mutual plc, where she held various senior executive roles including Group Finance Director of Old Mutual Emerging Markets, Director of Finance – Group Chief Accountant and Head of Group Planning and Analysis. She was also a Senior Audit Manager at KPMG LLP. Katie is a member of the Institute of Chartered Accountants in Scotland.

John Pollock – Independent Non-Executive Director

John has vast financial services experience from a career of over 35 years at Legal & General Group plc (‘L&G’), most recently as CEO of Legal & General Assurance Society. John’s previous positions at L&G include CEO of Protection & Annuities, Group Executive Director of Product & Corporate and Director of UK Operations. His NED experience includes roles as Chair of Cofunds Limited and Suffolk Life Limited and NED of Cala Group (Holdings) Limited. John has also acted as Deputy Chair of the Financial Conduct Authority (‘FCA’) Practitioner Panel, Life Insurance Member of the Financial Ombudsmen Service Industry Panel and has been a member of the Life Insurance Committee of the Association of British Insurers. John is a Fellow of the Royal Geographical Society.

Belinda Richards – Independent Non-Executive Director

Belinda has extensive financial services and strategy experience from a 30-year career. She was Senior Partner and Global Head of Merger Integration and Separation Advisory Services at Deloitte LLP. Prior to this, Belinda was Vice President of Post-Acquisition Integration and Separation Services at Ernst & Young LLP and Principal of Corporate Finance and Strategic Advisory Services at KPMG LLP. Her NED experience includes roles as NED and Chair of the Audit Committee of Avast plc and William Morrison Supermarkets plc, SID of Grainger plc and NED of Aviva Life & Pensions UK Limited and Friends Life Group Limited.

David Scott – Shareholder Nominated Director, abrdn plc

David is the appointed representative of one of Phoenix Group’s major shareholders, abrdn plc (‘abrdn’). He has over 35 years of financial services experience and is currently Chief Enterprise Technology Officer at abrdn. His previous roles include Chief Security and Resilience Officer and Group Digital & IT Strategy Director at abrdn, Group Operations & IT Director at Bankhall Investment Management and Head of IT at Aegon Asset Management UK. David’s NED experience includes roles as NED of Origo Services plc and Chair of the University of St Andrews Students Association. He is a Fellow of the Institute of Directors, a Full Professional Member of the British Computer Society, and a Chartered IT Professional.

Maggie Semple, OBE – Independent Non-Executive Director

Maggie is currently a business owner and co-founder of three businesses; The Experience Corps, Maggie Semple Limited and I-Cubed Group Ltd. Prior to this, Maggie acted as Director of Learning Experience at the  New Millennium Experience Co and Director of Education and Training for the Arts Council England. She began her career in education as a teacher and later an education inspector and has received an OBE for her services to learning. Maggie’s NED experience includes roles as NED of PwC Business Restructuring Services, JN Bank UK Limited, McDonald’s Restaurants Limited and as an Ambassador of the Black British Voices Project.

Nicholas Shott – Independent Non-Executive Director

Nicholas brings recent and relevant financial services experience having retired in 2021 from Lazard & Co Limited, where he spent over 30 years. There he held various positions including, European Vice Chairman and Head of UK Investment Banking. In his early years, Nicholas worked in the national newspaper sector in various management positions such as General Manager of the Evening Standard and Sunday Express and Group Marketing Director of Express Newspapers. Nicholas is a Special Adviser to the Chair and Board of the Daily Mail and General Trust plc and has been a NED for the Home Office.

Executive committee

Andy Briggs – Group Chief Executive Officer

Stephanie Bruce – Interim Group Chief Financial Officer

Arlene Cairns – Life Chief Financial Officer & Group Performance Director

Andy Curran – Chief Executive Officer, Standard Life

Mike Eakins – Group Chief Investment Officer

Dean Galligan – Chief Capital Officer

Tom Ground – Chief Executive Officer, Retirement Solutions

Claire Hawkins – Director of Corporate Affairs and Brand

Brid Meaney – Group Chief Risk Officer

Jackie Noakes – Chief Operating Officer

Jonathan Pears – Group Chief Risk Officer

Sara Thompson – Group People Officer

Colin Williams – Chief Executive Officer, Pensions and Savings

Quentin Zentner – Group General Counsel

Financials

Year	1	2	3	4	5	6	7	8	9	10	11	12	13	14
Year end date	31/12/2009	31/12/2010	31/12/2011	31/12/2012	31/12/2013	31/12/2014	31/12/2015	31/12/2016	31/12/2017	31/12/2018	31/12/2019	31/12/2021	31/12/2022	31/12/2023
	Historic	Historic	Historic	Historic	Historic	Historic	Historic	Historic	Historic	Historic	Historic	Historic	Historic	Historic
													Restated
Income statement
Insurance revenue													5,142	4,861
Insurance service expenses													(5,248)	(4,354)
Insurance service result before reinsurance contracts												7,455	(106)	507
Net expenses from reinsurance contracts												(2,079)	(162)	(180)
Insurance service result												5,376	(268)	327
Fees and commissions												1,001	858	967
Net investment income/(expense)												18,001	(38,012)	20,840
Other operating income												76	102	86
Gain on acquisition												110	–	66
Loss on disposal of Ark Life												(23)
Total income/(expense)												24,541	(37,320)	22,286
Net finance (expense)/income from insurance contracts													22,879	(6,982)
Net finance income/(expense) from reinsurance contracts													(1,053)	179
Net insurance finance (expense)/income													21,826	(6,803)
Change in investment contract liabilities												(16,812)	14,487	(13,894)
Change in reinsurers’ share of investment contract liabilities													(1,448)	873
Amortisation and impairment of acquired in-force business												(577)	(349)	(318)
Amortisation of other intangibles												(20)	(6)	(6)
Impairment of goodwill												(47)	0	0
Administrative expenses												(2,056)	(1,421)	(1,674)
Net income under arrangements with reinsurers												22	0	0
Net (expense)/income attributable to unitholders												(185)	372	(186)
Profit/(loss) before finance costs and tax												(188)	(3,859)	278
Finance costs												(242)	(230)	(258)
Profit/(loss) for the year before tax												(430)	(4,089)	20
Tax (charge)/credit attributable to policyholders’ returns												(258)	577	(184)
Loss before the tax attributable to owners												(688)	(3,512)	(164)
Tax (charge)/credit												(279)	1,432	(108)
Add: tax attributable to policyholders’ returns												258	(577)	184
Tax credit attributable to owners												(21)	855	76
Loss for the year attributable to owners												(709)	(2,657)	(88)
Attributable to:
Owners of the parent												(837)	(2,724)	(116)
Non-controlling interests												128	67	28
												(709)	(2,657)	(88)
Earnings per ordinary share
Basic (pence per share)												(86.4)p	(274.9)p	(13.8)p
Diluted (pence per share)												(86.4)p	(274.9)p	(13.8)p
Balance sheet
Assets
Pension scheme asset												36	14	26
Reimbursement Rights												212	205	204
Intangible assets
Goodwill												10	10	10
Acquired in-force business												4,323	2,177	1,912
Other intangibles												232	112	106
												4,565	2,299	2,028
Property, plant and equipment												130	125	106
Investment property												5,283	3,727	3,698
Financial assets
Loans and deposits												475	268	248
Derivatives												4,567	4,068	2,766
Equities												86,981	76,737	87,628
Investment in associate												431	329	349
Debt securities												104,761	83,116	93,374
Collective investment schemes												85,995	75,389	78,909
Reinsurers' share of investment contract liabilities												9,982	9,065	9,672
												293,192	248,972	272,946
Insurance assets
Insurance contract assets													48	-
Reinsurance contract assets													4,071	4,876
												8,726	4,119	4,876
Deferred tax assets												–	158	143
Current tax receivable												419	519	502
Prepayments and accrued income												373	403	439
Other receivables												1,805	4,455	2,578
Cash and cash equivalents												9,112	8,839	7,168
Assets classified as held for sale												9,946	7,205	4,594
Total assets												333,799	281,040	299,308
Equity and liabilities
Equity attributable to owners of the parent
Share capital												100	100	100
Share premium												6	10	16
Shares held by employee benefit trust												(12)	(13)	(15)
Foreign currency translation reserve												71	87	91
Merger relief reserve												1,819	1,819	1,819
Other reserves												56	46	16
Retained earnings												3,775	1,162	469
Total equity attributable to owners of the parent												5,815	3,211	2,496
Tier 1 Notes												494	494	494
Non-controlling interests												460	532	549
Total equity												6,769	4,237	3,539
Liabilities
Pension scheme liability												3,103	2,520	2,557
Insurance liabilities
Insurance contract liabilities													107,608	115,741
Reinsurance contract liabilities													7	147
Financial liabilities
Investment contracts												160,417	141,169	158,004
Borrowings												4,225	3,980	3,892
Deposits received from reinsurers												3,569
Derivatives												1,248	5,875	3,342
Net asset value attributable to unit holders												3,568	3,042	2,921
Obligations for repayment of collateral received												3,442	1,706	1,005
												176,469	155,772	169,164
Provisions												235	184	155
Deferred tax liabilities												1,399	309	257
Reinsurance payables												143
Payables related to direct insurance contracts												1,864
Current tax payable												19	34	41
Lease liabilities												99	92	74
Accruals and deferred income												567	544	579
Other payables												721	1,373	2,272
Liabilities classified as held for sale												11,746	8,360	4,782
Total liabilities												327,030	276,803	295,769
Total equity and liabilities												333,799	281,040	299,308
Cash flow statement
Cash flows from operating activities
Cash (utilised)/generated by operations												(871)	1,019	(770)
Taxation paid												(149)	(153)	(93)
Net cash flows from operating activities												(1,020)	866	(863)
Cash flows from investing activities
Acquisition of SLF of Canada UK Limited, net of cash acquired												–	–	(20)
Proceeds from completion of abrdn plc transaction												115	–
Disposal of Ark Life, net of cash disposed												189	–
Net cash flows from investing activities												304	–	(20)
Cash flows from financing activities
Proceeds from issuing ordinary shares, net of associated commission and expenses												2	4	6
Ordinary share dividends paid												(482)	(496)	(520)
Dividends paid to non-controlling interests												(9)	(10)	(11)
Repayment of policyholder borrowings												(18)	(32)	(58)
Repayment of shareholder borrowings												(322)	(450)	(350)
Repayment of lease liabilities												(16)	(14)	(14)
Proceeds from new shareholder borrowings, net of associated expenses												17	–	346
Proceeds from new policyholder borrowings, net of associated expenses													61	64
Coupon paid on Tier 1 Notes												(29)	(29)	(29)
Interest paid on policyholder borrowings												–	(1)	(3)
Interest paid on shareholder borrowings												(237)	(215)	(200)
Net cash flows from financing activities												(1,094)	(1,182)	(769)
Net decrease in cash and cash equivalents												(1,810)	(316)	(1,652)
Cash and cash equivalents at the beginning of the year (before reclassification of cash and cash equivalents to held for sale)												10,998	9,188	8,872
Less: cash and cash equivalents of operations classified as held for sale												(76)	(33)	(52)
Cash and cash equivalents at the end of the year												9,112	8,839	7,168

What are the assumptions used to estimate the financial forecasts?

Key inputs

Description	Value	Commentary
Revenue
What's the estimated current size of the total addressable market?	$1,300,000,000	Here, the total addressable market (TAM) is defined as the global life insurance, pensions, retirement solutions market, and based on a number of assumptions, it is estimated that the size of the market as of today (6th May 2023), in terms of revenue, is $1.3 trillion.
What is the estimated company lifespan?	50 years	Currently, Phoenix employs around 201, making the company a small organisation (less than 10,000 employees). That said, given the company's mission, we expect the company to grow to a large organisation, and research shows that the average lifespan of a large corporation is around 50 years.
What's the estimated annual growth rate of the total addressable market over the lifecycle of the company?	3%	Research shows that the growth rate of the global life insurance, pensions, retirement solutions market (i.e. the total addressable market) is similar to the growth rate of global gross domestic product, which has averaged (medium) around 3% per year in the last 20 years (2001 to 2022).
What's the estimated company peak market share?	1%	The Stockhub crowd estimates that especially given the leadership of the company, the peak market share of Phoenix is around 1%, and, therefore, suggests using the share amount here. As of 30th September 2021, Phoenix's current share of the market is estimated at around 0.0010%.
Which distribution function do you want to use to estimate company revenue?	Gaussian	Research suggests that the revenue pattern of companies is similar to the pattern produced by the Gaussian distribution function (i.e. the revenue distribution is bell shaped), so the Stockhub crowd suggests using that function here.
What's the estimated standard deviation of company revenue?	5 years	Another way of asking this question is this way: within how many years either side of the mean does 68% of revenue occur? Based on Phoenix's current revenue amount (i.e. £12.68 million) and Phoenix's estimated lifespan (i.e. 50 years) and Phoenix's estimated current stage of its lifecycle (i.e. introduction stage), the Stockhub crowd suggests using five years (i.e. 68% of all sales happen within five years either side of the mean year), so that's what's used here.
Growth stages
How many main stages of growth is the company expected to go through?	4 stages	Research suggests that a company typically goes through four distinct stages of cash flow growth. Research also shows that incorporating those stages into the discounted cash flow model improves the quality of the model and, ultimately, the quality of the value estimation. In addition, research shows that a key way to determine the stage which a company is in is by examining the cash flow patterns of the company. A summary of the economic links to cash flow patterns can be found in the appendix of this report. The Stockhub crowd estimates that with Phoenix's operating cash flows negative (-), investing cash flows positive (+) and its financing cash flows negative (+ -), the company is in the fourth stage of growth (i.e. the 'decline' stage), and, therefore, it has a total of one main stages of growth. Note, to account for one-off events, the three-year average (median) amount was used to calculate the cash flows.
What proportion of the company lifecycle is represented by growth stage 1?	30%	Research suggests 30%.
What proportion of the company lifecycle is represented by growth stage 2?	10%	Research suggests 10%.
What proportion of the company lifecycle is represented by growth stage 3?	20%	Research suggests 20%.
What proportion of the company lifecycle is represented by growth stage 4?	40%	Research suggests 40%.
Growth stage 1
Cost of goods sold as a proportion of revenue (%)	12.92%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Operating expenses as a proportion of revenue (%)	159.10%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Tax rate (%)	(3.07)%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Depreciation and amortisation rate (%)	56.26%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Fixed Capital Investment (FCInv) as a proportion of revenue (%)	8.59%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Working Capital Investment (WCInv) as a proportion of revenue (%)	50.93%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Net borrowing as a proportion of revenue (%)	21.75%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Interest expense as a proportion of revenue (%)	0.06%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 1). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Growth stage 2
Cost of goods sold as a proportion of revenue (%)	0.00%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Operating expenses as a proportion of revenue (%)	41.11%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Tax rate (%)	15.23%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Depreciation and amortisation rate (%)	79.52%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Fixed Capital Investment (FCInv) as a proportion of revenue (%)	1.13%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Working Capital Investment (WCInv) as a proportion of revenue (%)	52.01%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Net borrowing as a proportion of revenue (%)	0.27%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Interest expense as a proportion of revenue (%)	0.41%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 2). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Growth stage 3
Cost of goods sold as a proportion of revenue (%)	0.00%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Operating expenses as a proportion of revenue (%)	55.16%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Tax rate (%)	19.91%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Depreciation and amortisation rate (%)	18.93%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Fixed Capital Investment (FCInv) as a proportion of revenue (%)	2.21%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Working Capital Investment (WCInv) as a proportion of revenue (%)	(1.46)%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Net borrowing as a proportion of revenue (%)	(1.10)%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Interest expense as a proportion of revenue (%)	0.31%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 3). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Growth stage 4
Cost of goods sold as a proportion of revenue (%)	36.13%	Research suggests that it's best to use a similar margin rate as the one used by peers that are in the same growth stage (i.e. growth stage 4). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Operating expenses as a proportion of revenue (%)	174.39%	Research suggests that it's best to use a similar margin rate as the one used by peers that are in the same growth stage (i.e. growth stage 4). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Tax rate (%)	(1.94)%	Research suggests that it's best to use a similar rate as the one used by peers that are in the same growth stage (i.e. growth stage 4). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Depreciation and amortisation rate (%)	47.29%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 4). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Fixed Capital Investment (FCInv) as a proportion of revenue (%)	6.25%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 4). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Working Capital Investment (WCInv) as a proportion of revenue (%)	2.13%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 4). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Net borrowing as a proportion of revenue (%)	0%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 4). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.
Interest expense as a proportion of revenue (%)	0%	Research suggests that it's best to use a similar amount as the one used by peers that are in the same growth stage (i.e. growth stage 4). Information on the peers and the calculation of the figure used here can be found in the appendix of this report.

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 interest rate volatility (i.e. interest rate risk).

1. Regulatory and Legislative Risks

• Solvency II and Capital Requirements: As an insurer, Phoenix is subject to Solvency II regulations, which require insurers to hold a certain level of capital relative to their liabilities. Changes in these regulations or an increase in capital requirements could force Phoenix to retain more capital, reducing its flexibility and potentially impacting dividend payments.
• Pension and Insurance Regulation Changes: Since Phoenix operates heavily in the pensions and retirement solutions sectors, any adverse changes in pension or tax legislation could impact demand for its products, profitability, and its Bulk Purchase Annuities (BPA) business.
• Climate and ESG Regulation: Increasingly strict Environmental, Social, and Governance (ESG) requirements are pushing insurers to adjust investment portfolios to meet regulatory guidelines. Phoenix might need to divest from certain assets, which could reduce investment returns.

2. Interest Rate and Investment Yield Risks

• Low Yield Environment: A substantial portion of Phoenix's revenues comes from the investment returns on its policyholder funds. In a low-interest-rate environment, the company may struggle to generate adequate returns on its investment portfolio, which can impact profitability and dividend payouts.
• Rising Interest Rates: While rising interest rates might benefit Phoenix’s investment returns, they also increase discount rates, which can reduce the value of Phoenix's long-term liabilities, including its bulk purchase annuity (BPA) business. Higher rates can also reduce the value of the bond-heavy portfolios often held by insurers.
• Market Volatility: A significant portion of Phoenix's assets is invested in fixed-income securities. Market volatility can cause fluctuations in the value of these investments, impacting the solvency position, especially if there’s a sudden downturn.

3. Longevity and Mortality Risk

• Longevity Risk: Phoenix bears longevity risk, as it is responsible for paying benefits as long as policyholders live. Longer life expectancies increase the liabilities on Phoenix’s books, potentially eroding profitability, particularly for its annuity and pension businesses.
• Mortality Risk: Unforeseen mortality events (e.g., pandemics) could lead to higher-than-expected claims, increasing Phoenix's short-term liabilities and impacting its solvency position.

4. Competition and Market Dynamics

• Intense Competition: Phoenix faces competition from other insurers, especially in the bulk purchase annuity (BPA) market, where players like Legal & General and Aviva have strong market positions. Competition could impact Phoenix’s ability to acquire new business profitably.
• New Market Entrants: As Phoenix expands into open-book insurance and retirement solutions, it faces competition from established life insurers and pension providers, which may make it difficult to gain significant market share in these areas.

5. Acquisition Integration and Execution Risks

• Dependence on Acquisitions: Phoenix's growth strategy is heavily reliant on acquiring closed-book life insurance portfolios and expanding into BPAs. However, integrating these acquisitions can be complex and costly. Any difficulties in integrating new acquisitions could affect Phoenix’s operational efficiency and financial performance.
• Integration Challenges: Acquisitions bring challenges, from technology integration to operational alignment. Phoenix’s success in generating returns relies on its ability to integrate and manage these new books effectively, which is not always guaranteed.

6. Liquidity and Refinancing Risks

• Debt Levels and Refinancing: Phoenix Group uses debt financing to fund some of its acquisitions. If the cost of debt rises (e.g., due to increasing interest rates or a change in credit rating), it could increase financing costs and reduce cash available for dividends and expansion.
• Liquidity Constraints: In a market downturn, Phoenix may need to access capital markets to fund operations or meet capital requirements. Limited access to liquidity or higher-than-expected costs could negatively impact Phoenix’s stability.

7. Reputation and Brand Risk

• Customer Trust and Brand Value: Phoenix relies on a strong brand, especially in retirement and pension solutions. Negative publicity or poor customer experience, especially following an acquisition, could erode brand trust and hinder its growth efforts.
• ESG and Social Responsibility: As public and investor scrutiny of ESG practices grows, any misalignment or failure to meet ESG standards could damage Phoenix’s reputation and investor appeal.

8. Operational and Technological Risks

• Cybersecurity: Phoenix holds vast amounts of sensitive policyholder information. Any breach could lead to financial losses, reputational damage, and regulatory scrutiny.
• Legacy System Management: With Phoenix’s expansion through acquisitions, the company must integrate various IT and data systems effectively. Operational disruptions, system failures, or integration issues could impact service levels and increase operational costs.

Valuation

What's the expected return of an investment in the company?

The Stockhub crowd estimates that the expected return of an investment in the company over the next five years is 202%, which equates to an annual return of 25%. In other words, an £1,000 investment in the company is expected to return £3,016 in five years time. The assumptions used to estimate the return figure can be found in the table below.

Assuming that a suitable return level over five years is 25% per year or less, and Phoenix achieves its expected return level (of 25%), then an investment in the company is considered to be an 'suitable' one.

What are the assumptions used to estimate the return?

Key inputs

Description	Value	Commentary
Which valuation model do you want to use?	Discounted cash flow	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 he Stockhub crowd suggests to use here; nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the using the relative valuation approach (the valuation based on the relative approach can be found in the appendix of this report). Phoenix has never paid cash dividends, and on 7th February 2022, it said that it currently does not anticipate paying any cash dividends in the foreseeable future. Accordingly, the Stockhub crowd suggests using the free cash flow valuation method (rather than the dividend discount model).
Which financial forecasts to use?	The Stockhub crowd	The only available long-term forecasts (i.e. >15 years) 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.
Growth stage 1
Discount rate (%)	30%	There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
Probability of success (%)	70%	Research suggests that a suitable rate for a company in this growth stage (i.e. stage 1) is 70%.
Growth stage 2
Discount rate (%)	15%	There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
Probability of success (%)	80%	Research suggests that a suitable rate for a company in this growth stage (i.e. stage 2) is 80%.
Growth stage 3
Discount rate (%)	10%	There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
Probability of success (%)	100%	Research suggests that a suitable rate for a company in this growth stage (i.e. stage 3) is 100%.
Growth stage 4
Discount rate (%)	10%	There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
Probability of success (%)	100%	Research suggests that a suitable rate for a company in this growth stage (i.e. stage 4) is 100%.
Other key inputs
What's the current value of the company?	£225 million	As at 13th June 2023, the current value of its company at £225 million.
Which time period do you want to use to estimate the expected return?	Between now and five years time	Research suggests that following a market crash, the average amount of time it takes for the price of a stock market to return to its pre-crash level (i.e. the recovery period) is at least three years. Accordingly, 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):

1. The size of the total addressable market (the default size is $1.3 trillion);
2. Phoenix peak market share (the default share is 1%); and
3. The discount rate (the default time-weighted average rate is 16.50%).

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

Phoenix investment expected return sensitivity analysis

Main input	50% worse	Unchanged	50% better
The discount rate	(258)%	202%	1752%
The size of the total addressable market	51%	202%	352%
Phoenix peak market share	51%	202%	352%

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?

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.
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):

1. The expected growth rate of dividends (the default rate is 1.75%);
2. The expected dividend amount in the next period (the default amount is 53.75p); and
3. 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.

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?

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.
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):

1. The growth-adjusted EV/sales multiple (the default multiple 0.19);
2. Phoenix Year 5 sales figure (the default figure is £777 million); and
3. 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.

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

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

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

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%

Phoenix beta and adjusted beta value

	Value	Comment(s)
Beta	0.642647
Adjusted beta	0.761765

Cost of equity

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. 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. 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.