Investments In Technology And DB Market Opportunities Will Strengthen Future Prospects

Key Takeaways

• Strategic focus on Defined Benefit and Defined Contribution markets positions Just Group for revenue growth through new business sales and market capture.
  
• Investments in technology and asset origination bolster competitive pricing, aiding in cost control and enhancing profit margins over time.
  
• Reliance on low new business strain and large DB deals poses risks to profitability and revenue predictability amid rising interest rates and regulatory challenges.

Catalysts

Provides various retirement income products and services to individual and corporate clients.in the United Kingdom.

• Just Group has capitalized on the vast potential within the Defined Benefit (DB) market, with a reported £1 trillion opportunity over the next decade. This positions the company to continue growing its new business sales, thereby potentially increasing its revenue significantly.
  
• The retail segment offers substantial growth prospects, particularly due to projections that over £1 trillion of Defined Contribution (DC) assets will reach retirement age in the next decade, which could drive revenue increases as Just Group captures more of this market.
  
• The company's recent investments in internal capabilities, like technology and asset origination, ensure it can maintain competitive pricing and low new business strain. This could positively impact net margins by controlling costs and maintaining pricing discipline.
  
• Just Group plans to deploy surplus capital for future growth and new business opportunities, effectively reinvesting to sustain and accelerate earnings growth. This proactive capital management strategy aims to enhance earnings per share over time.
  
• Their market-leading technology, such as the Beacon price monitoring service, enables efficient processing of transactions, thus retaining competitive advantage and potentially translating to better business volumes and margins, supporting sustained profitability and shareholder returns.

Just Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Just Group's revenue will grow by 49.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 3.2% today to 2.1% in 3 years time.
• Analysts expect earnings to reach £150.2 million (and earnings per share of £0.13) by about May 2028, up from £68.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting £180.7 million in earnings, and the most bearish expecting £93.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.6x on those 2028 earnings, down from 21.5x today. This future PE is greater than the current PE for the GB Insurance industry at 12.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.56%, as per the Simply Wall St company report.

Just Group Future Earnings Per Share Growth

Risks

• The company's growth heavily relies on maintaining a low new business strain, which, if not sustained, could impact profit margins and overall earnings.
  
• Rising interest rates, while currently managed through hedging strategies, could still pose risks to capital requirements and impact financial stability if not correctly anticipated, affecting net margins.
  
• Competitive pressures and tight credit markets could potentially reduce margins, impacting profitability and, consequently, shareholder returns.
  
• Market sensitivities to regulatory changes, such as recent Solvency II reforms, could lead to unforeseen capital impacts, thus affecting cash reserves and solvency ratios.
  
• The reliance on large deals in the DB market, which can be seasonal and unpredictable, presents an execution risk that may impact the predictability of future revenues and profits.

Valuation

• The analysts have a consensus price target of £1.891 for Just Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £2.19, and the most bearish reporting a price target of just £1.7.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £7.1 billion, earnings will come to £150.2 million, and it would be trading on a PE ratio of 18.6x, assuming you use a discount rate of 12.6%.
• Given the current share price of £1.41, the analyst price target of £1.89 is 25.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.