Source: Sharecast
Berenberg stated that as part of Chesnara's £260m acquisition of HSBC Life, completed in January, the firm had acquired an operation that generates new business and that aligns with its existing product suite, particularly with its open onshore fund.
"Until now we had not included the potential benefit of this new business in our valuation, as we felt that it could potentially dilute the focus of the group and of its shareholders on the value created from life-backbook deals," said Berenberg, which reiterated its 'buy' rating on the stock.
However, given the positive market reaction to the 15 April £2bn Standard Life acquisition of Aegon Life UK, which has seen Standard Life's share price rise by roughly 10%, the German bank now believes that there has been "increased investor interest in new business growth" in UK life insurance.
"While we maintain our forecast 3% DPS growth, in line with Chesnara's 20-year continuous DPS growth track record, we raise our dividend-discount-based valuation to reflect the benefit of the fall in UK equity risk premiums. We cut the discount rate we use to discount future dividend growth from 9.2% to 8.9%," added Berenberg.
Reporting by Iain Gilbert at Sharecast.com