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Just Group tanks as it announces share placing, scraps dividend

By Michele Maatouk

Date: Thursday 14 Mar 2019

(Sharecast News) - Shares in Just Group tanked on Thursday as the retirement products specialist announced plans to bolster its balance sheet with an equity placing, scrapped its dividend and reported a full-year loss.
As it looks to strength its capital base to support new business franchise and maintain a focus on profit growth following the introduction of new capital rules last year, Just Group announced a 9.99% equity placing and a tier 1 debt offering with a minimum size of £300m.

The company said that after the placing and debt issue, its solvency ratio would rise from 136% to 160% on a pro forma basis as at 31 December 2018.

Just Group also said that given the circumstances, it has decided to scrap its dividend for 2018 but expects to recommence payments in 2019 at a rebased level.

In its results for the year to the end of December 2018, the company said it made a pre-tax IFRS loss of £86m versus a profit of £181m the year before, driven by changes to property assumptions in light of the economic and financial uncertainty caused by Brexit.

Underlying profit was up 31% to £315m and adjusted operating profit fell 5% to £210m. New business profits rose 44% during the year to £244m, thanks to strong sales growth and an increase in the new business margin to 11.2% from 9% in 2017.

Chief executive Rodney Cook said: \"2018 has been a year of contrasts. We have achieved significant new business profit growth, strong margins and higher sales despite significant uncertainty during the Prudential Regulation Authority\'s consultation into equity release mortgages.

\"I want to acknowledge the challenges our shareholders have faced during this period and to assure them we remain focused on delivering value for them by developing our highly effective new business franchise.

\"As previously announced, following the release of the PRA policy statement 31/18, the board has been determining the optimal capital mix and level in order to provide a stronger capital base to support the development of the group\'s capabilities. After careful consideration, we are today announcing a package of capital actions, including an underwritten Restricted Tier 1 debt offering of at least £300m and an underwritten non pre-emptive equity placing of 9.99% of existing share capital, which will allow the group to maintain its focus on growing profits.\"

Shore Capital said it expected that the company would need to raise additional debt but the equity issuance comes as a surprise.

Analyst Paul De\'Ath said it makes sense to cancel the dividend for 2018, as it was at the interim stage.

\"This makes sense given the capital raise and has actually been suggested to us by a number of investors. At this stage, however, the company plans to pay a rebased dividend (1/3 of the previous per share amount) from 2019F.

\"Overall today\'s announcements amount to the company resetting a number of factors in order to prepare for the future. The capital breakeven point has been pushed back by a number of years as part of that process. There is likely to be some short-term reduction in the share price to adjust for the placing but going forward this should put the business in a much more secure place regarding capital and take away much of the uncertainty surrounding the stock. We will need to flow the latest developments through our model but the business still looks too cheap and we would expect a positive reaction once the placing has been completed.\"

At 0930 GMT, the shares were down 14% to 83.50p.

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