Like other London-listed insurance giants, 2025’s been a great year for Phoenix Group (LSE:PHNX) shares. Even with the FTSE 100 climbing by over 17% since January, Phoenix has marched ahead, climbing 47.5% when counting dividends, transforming a £5,000 lump sum investment into £7,375.
This stellar performance puts the business firmly ahead of its top-tier rivals like Legal & General. Yet, when looking at some of the latest analyst forecasts, even more growth could be on the horizon.
In fact, the experts at Berenberg Bank believe Phoenix shares could climb yet another 25.5% by this time next year, along with its near-8% dividend yield being maintained.
So what’s behind this bullish forecast? And is now the time for investors to start thinking about buying Phoenix Group shares?
The power of a strategic shift
Let’s start with a bit of context. Historically, Phoenix specialised in buying closed-book life insurance and pension portfolios from other insurance companies. It was quite a niche strategy. But it allowed the business to generate lots of cash, efficiently manage risk, and avoid competing directly with industry titans.
This business model saw Phoenix evolve into a multi-billion-pound empire. The only problem is that this strategy doesn’t scale. And as such, management’s recently been repositioning the business into a leading retirement savings and income insurance enterprise.
Today, the company offers ISAs, workplace and individual pensions, as well as annuities for individuals and corporations alike. And this strategic pivot sits at the heart of Berenberg’s forecast.
By transforming into a capital-efficient business, Phoenix’s already impressive cash generation has increased with growth simultaneously reaccelerating. And when paired with ongoing cost-saving efforts, management’s currently on track to generate £5.1bn between 2024 and 2026.
As of September, £2.6bn of this has already been achieved, with year-on-year cash generation growth sitting at 9% versus its mid-single digit target.
Given that the company’s starting to outperform even its own expectations, it isn’t hard to understand why Berenberg’s excited about what the future holds.
Taking a step back
While there’s no denying the impressive results Phoenix has delivered so far, not everyone is as optimistic as Berenberg. For example, the team at JP Morgan has valued Phoenix shares at just 605p, implying the stock could fall by close to 10% over the next 12 months.
Even with management hitting key milestones, JP Morgan has highlighted the rising level of macroeconomic risk. Don’t forget, Phoenix Group’s highly sensitive to movements in interest rates, particularly for its annuities.
When interest rates fall, so does the potential return on low-risk investments. However, the size of Phoenix’s annuity obligations rises, creating an asset-liability mismatch. The company has hedges in place to manage this risk. But if the market moves faster than expected, they may prove insufficient, putting solvency and investment margins under pressure.
Put simply, JP Morgan’s concerned about a potential cyclical downturn next year. And while this likely wouldn’t be catastrophic for Phoenix, the market environment would definitely make it much harder to reach its £5.1bn target.
So should investors be considering this stock? With an 8% dividend yield on offer, the stock is definitely worth a closer look. But it’s important to recognise, there’s substantial macroeconomic risk surrounding this business.
