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Customary Life‘s (LSE:SDLF) share price didn’t change a lot on Wednesday (15 April), following an announcement that it’s reached an settlement to amass the UK insurance coverage and pension enterprise of Aegon.
Let’s take a better take a look at the implications of the deal. Particularly, what may it do to the group’s share worth?
Some vital particulars
The deal values Aegon’s operation at £2bn. It is going to be paid for by means of a mixture of debt (£650m), money (£750m), and the difficulty of latest shares (£600m).
At first look, the comparatively muted response of traders — by mid-afternoon, the group’s shares had been up 1.5% — is a bit stunning. In any case, the agreed worth is equal to twenty-eight.5% of Customary Life’s market cap.
Nevertheless, the enterprise being acquired is reported to have an annual adjusted working revenue of £190m, valuing the group at 10.5 instances this determine. In 2025, Customary Life’s adjusted earnings had been £945m, equal to a pre-announcement valuation of seven.5 instances revenue.
What does this imply?
These numbers could possibly be interpreted in two methods.
Both Customary Life’s paying £575m an excessive amount of, or the group itself is undervalued by £2.8bn. Which is it? Judging by the response of traders right now, no one actually is aware of.
It could possibly be that the Metropolis’s digesting the implications for the group’s backside line of taking up new debt. And issuing extra shares – Aegon will develop into a 15.3% shareholder — will dilute current homeowners. As soon as the mud settles, the share worth may present an even bigger motion, both up or down.
Moving into the suitable course
For instance, it should create the biggest long-term retirement financial savings and earnings enterprise within the UK. It would add roughly £160bn to property underneath administration and one other 3.8m prospects.
And it means 57% of working revenue of the enlarged group will come from capital-light fee-based enterprise.
As well as, it should enhance the group’s Solvency II ratio by a couple of share factors.
Additionally, it’s estimated that £400m of extra free money shall be generated within the first 5 years following the acquisition. Though optimistic, that is unlikely to be a gamechanger for current shareholders like me.
Already, the group has a popularity for being among the finest FTSE 100 dividend payers – the inventory’s at present yielding 7.7%. Returning one other £80m to shareholders every year would equate to 0.67p, based mostly on the extra 181.1m shares being issued. This is able to be a 1.2% enchancment on the group’s 2025 payout.
In fact, there can by no means be any ensures when it comes shareholder returns. Certainly, the group hasn’t confirmed whether or not all (or any) of the additional money shall be paid in dividends.
However there are dangers. It’s not simple integrating newly acquired companies. And the transaction nonetheless wants regulatory approval.
My view
Personally, I welcome the “mid-single digit accretion” to adjusted working earnings per share.
However to be trustworthy, as a shareholder, I’m not overly-excited by the deal. For instance, I nonetheless have some considerations over the acquisition worth. Nevertheless, I believe it should add worth over the long run. In flip, this could translate into the next share worth and assist preserve dividend development. And that’s all that basically issues relating to investing.
On this foundation, I’m going to maintain maintain of my shares.
