Should I Buy Standard Life?

Published in Company Comment on 7 December 2012

Harvey Jones sizes up Standard Life (LSE: SL.).

It's time to go shopping for shares again, but where to start? There are loads of great stocks to choose from, and I've got my wallet out. So here's the question I'm asking right now. Should I buy Standard Life (LSE: SL)?

The only way is up

It's been a year of ups and downs for stocks and shares, but nobody told insurer Standard Life, whose share price has only gone in one direction lately. So far this year, its chart closely resembles an escalator, gliding upwards in smooth, steady steps. I can't recall seeing a chart like it this year. So can this 200-year-old UK savings and investments company keep climbing higher and higher? And is now the time to step on?

High standards

Standard Life is up almost 70% this year, compared to 3.5% for the FTSE 100 (UKX) as a whole. That's a barnstorming performance. I've been watching this insurer for the last two or three years, but clearly not close enough. It has been good news all the way, including a 28% leap in profits to £544 million in 2011 and a 6.4% dividend hike in March. That's impressive, given how nervous private investors are in these volatile times. Standard Life also has to operate under the regulatory shadow cast by the Retail Distribution Review, an aggressive attempt by City regulator FSA to curb the financial services industry's charging excesses, which comes into force on 31 December.

Life is beautiful

Standard Life has treated this as an opportunity rather than a threat, and has also leapt gratefully onto auto-enrolment, the government's scheme to give millions of low-paid workers access to a company pension for the first time. As Ministers nudge more of us into saving for retirement (while simultaneously hacking away at the tax incentives), then strong, solid, respected pension specialists such as Standard Life should reap the rewards. I myself have a Standard Life pension product, a stakeholder I took out nearly a decade ago.

Standards maintained

The good news continued in August, with half-year profits rising 15% to £302 million, and again at the end of October. Following strong inflows, assets under management rose to nearly £212 billion, up from £204 billion at the end of June. Standard Life's balance sheet looked robust, rising from £3 billion to £3.4 billion over the same period, although the company warned it remains sensitive to market movements. It also warned it wasn't immune to eurozone woes and consumer angst, while the global pensions and savings market is increasingly competitive. Any company whose business is investing in volatile assets such as shares and property will always be exposed to risk.

High life, high price

Standard Life's progressive dividend policy leaves it yielding a decent 4.2%, covered 0.9 times. Like fellow UK insurance giant Prudential, it is expanding into Asia and emerging markets. There is only one thing stopping me from buying this stock, and you can probably guess what it is. Latest broker recommendations suggest the escalator effect may slow. Panmure Gordon has a target price of £3.25, Investec targets £2.79 and Nomura has its sights on £2.60, all below the current share price of £3.29. I prefer to buy companies before they have risen 70%, rather than after. Trading on a price-to-earnings ratio of 16.5 times earnings, Standard Life has risen beyond my reach. It has delivered plenty of good news this year, and it is all reflected in the share price. Even an escalator can't go up forever. I think I'll take the stairs.

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> Harvey holds shares in Prudential. He doesn't own any shares mentioned in this article.

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