It’s rare for me to buy a FTSE 250 stock. Most of the 18 shares I hold in my self-invested personal pension (SIPP) are blue-chips culled from the FTSE 100. I may have to rethink though, given my recent successful foray into the UK’s mid-cap index.
I bought retirement planning adviser Just Group (LSE: JUST) on 30 November. The stock looked too cheap to ignore trading at less than four times earnings. After a slow start, it’s taken off.
I bought Just in time
The Just Group share price is up 22.77% over 12 months, but most of the action came last month, when it climbed 21.85%. I got my timing just right, as I’m personally up 29.67% and feeling very pleased with myself.
Just only floated on the FTSE in 2013, and after a bright start was hammered by former chancellor George Osborne’s April 2015 pension freedom reforms. They liberated savers from the obligation to buy an annuity at retirement, and sales collapsed overnight.
Just has adjusted, targeting the fast-growing bulk annuities business, where it’s holding its own against FTSE 100 big boys like Aviva and Legal & General Group. It’s also offers equity release lifetime mortgages, another expanding market, which allows cash-strapped older homeowners to unlock capital from their homes.
Just has also benefitted from surging interest rates, as this has revived demand for individual annuities, as rates climbed with bond yields.
The stock jumped 15% on 7 March after full-year results showed a 47% increase in underlying operating profit to £377m. Annuity sales were the highest in a decade, up 46% to £5.3bn.
More growth to come
The board remains optimistic for sustained growth of 15% in underlying operating profit. Group CEO David Richardson expects “to achieve our target of doubling profits in three years instead of the originally intended five”.
The balance sheet looks strong with a capital coverage ratio of 197%. Importantly, it now has tangible net assets per share of 224p, which is more than double the current share price of 106p. There’s plenty of scope for a re-rating here.
The 2% yield can’t compete with the bumper offerings from Aviva and L&G, but its dividends should grow at a faster pace, judging by the recent 20% hike.
There are risks, as ever. If Just misses its ambitious growth targets, disappointed investors will take their revenge on the share price. Interest rates will fall at some point, and this could reverse the recent increase in individual annuity sales. The bulk annuity market must hit its ceiling at some point.
Despite these concerns, there’s no way I’m selling Just Group. I’m hoping to let this one run and run, as the next decade looks more promising than the last one. The only question is whether I buy more today. I might just do that.
