I only hold a couple of FTSE 250 stocks. The vast majority of my portfolio is plucked from the FTSE 100 but specialist retirement advisor Just Group (LSE: JUST) is a rare and heroic exception to that rule. Especially after today’s bumper results.
I knew about the company from my work as a financial journalist but never thought of buying its shares as they were having a torrid time.
The Just Group share price crashed in July 2018 after management warned it had to set aside extra capital to cover its lifetime mortgage products, ahead of a Prudential Regulation Authority consultation into the equity release market.
Super growth stock
While the consultation concerned every equity release product provider, Just was more vulnerable than big guns like Aviva and Legal & General Group. The consultation never came to much, though, and events moved on.
Investors woke up to the fact that Just had been heavily oversold and was ripe for a comeback. This morning it made yet another great leap forwards, after posting a whopping 44% increase in first-half underlying operating profit to £249m.
The Just Group share price rocketed as a result and is up 16.87% today. Personally, I’m up 65% since buying the stock on 30 November. The 12-month return is 41.96%. For once, I was a little lucky with my timing.
Even after today’s mighty leap, the shares still trade at a laughably low 4.2 times earnings. As a medium-sized business with a market cap of £1.43bn, I think it’s got plenty of room for growth.
Just focuses on later life and retirement income, selling products such as annuities and equity release lifetime mortgages. As the population ages and the state struggles, there’s growing demand for this type of stuff.
Today’s growth was largely driven by higher new business sales. Retirement income sales grew 30% to £2.5bn while pricing discipline and risk selection widened margins to 9%.
Low but rising income
New business volumes are expected to continue climbing in the second half, although margins may narrow due to a shift in business mix. Markets took that news pretty well. I hope that doesn’t come back to bite investors.
Just looks solid with a capital coverage ratio of 196%. Cash generation before new business was steady at £49m.
Just Group also reported an improved return on equity of 15.6% and an increase in tangible net assets per share to 240p. That offers a huge safety net given that the share price is roughly half that at around 137p.
CEO David Richardson delivered the killer line by saying Just expects to “substantially exceed previous 2024 guidance of doubling 2021’s £211m operating profit in three years”.
The yield is pretty meagre at just 1.52%. However, the board did hike today’s interim dividend by 20% to 0.7p per share. So shareholder payouts are climbing nicely.
My main worry is that annuity sales could slide once interest rates start falling, hitting a key source of revenue.
Should I buy more? Typically, I’m a contrarian who targets out-of-favour stocks. Just is now likely to prove the exception to that rule, too.
