Standard Life shares unleashed by 3-in-1 deal

<p>Standard Life shares shine at the top of the FTSE 100 today as the life insurer announced a break-through deal to sell a troublesome North […]</p>

Standard Life shares shine at the top of the FTSE 100 today as the life insurer announced a break-through deal to sell a troublesome North American unit whilst also expanding an existing wealth and asset management partnership.

Standard Life, primarily a provider of services for individual savers and investors, said Manulife Financial Corporation, the Canadian financial services conglomerate, would buy the UK group’s operations in Canada for about $4bn.

The companies will also expand their existing partnership over wealth and asset management, with Manulife distributing Standard Life funds in Canada, the United States and Asia and Standard Life exchanging the same services for its partner in the British retail market.

The newly transferred operations are expected to be accretive after the first year for Manulife and more than double its presence in the largely French-speaking Canadian province.

Standard Life said it would return more than half of the sale proceeds to shareholders, although chief executive David Nish has not specified a use for the rest of the cash.

Nish noted Standard would now be able to realise the full value of a business that has been turned around in recent years and expand collaboration on distribution.

This could triple the $6 billion of assets under management already gained through a similar distribution deal with Manulife’s John Hancock business, Nish said.

 

Insurance industry lauds Standard Life’s reduced exposure to low-growth assets

Standard Life’s shares rose as much as 10% in reaction to the news putting it on course for its biggest gain in one-day for 5 years in better than the average daily volume.

Standard’s sale of its Canadian operations is being widely lauded by insurance industry experts mostly because of the implied reduction of exposure to market risk, specifically to the Canadian businesses’ capital-intensive legacy book spread-risk—essentially, a fault of the virtue of low default risk: poor income prospects.

Whilst Standard still trades at a forward price earnings ratio of 14.26, a premium to its peer group, it more or less matches the average for yield around 4.2%.

This news may help offset the perceived risk from the new UK pension regime after the Chancellor of the Exchequer’s move to make the purchase of one no longer obligatory.

Standard Life was the first of several FTSE 100 pensions groups to disclose sharp drops in profits generated from annuities last month.

Whilst Prudential Plc. or Legal & General Group might be better for investors seeking ‘purer’ insurance exposure, the stock price currently exhibits much strength, even as it re-approaches the 437.53p all-time high from May 2013.

In the event of enhanced profit taking the prior peak for the year at 406.08p from June ought to provide a pause at the very least.

The stock currently trades 6.5% higher at 411.10p.

Standard Life post Canada sale

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.