Midas share tips: Chesnara | Coal of Africa
The Mail on Sunday's share-tipping column looks at Chesnara and updates on Coal of Africa. You can also sign up for free additional Midas share tips that will be sent to your inbox once a week.
Surge: Coal prices have risen in recent months and Coal of Africa is benefitting
Bargain is boosting Chesnara
An anagram of life insurer Chesnara is 'earn cash'.
The play on words is not deliberate but it is highly appropriate because Chesnara offers one of the most generous dividend yields on the stock market.
The company was originally part of estate agency chain Countrywide, but it established an independent identity in 2004 when the rest of the Countrywide group was sold to US private equity firm Apollo Management.
Chesnara swiftly bought another UK life insurer and by 2005 had about 180,000 policyholders and more than £1bn of assets under management.
From the beginning, the business was closed, meaning that it focused on existing policyholders, rather than acquiring new ones.
This type of life company is much cheaper to run as money does not have to be spent trying to find new customers or setting up new policies.
In fact, chief executive Graham Kettleborough has been determined to run a tight ship from the outset, keeping costs down to a minimum and ensuring there is plenty of cash available to pay out in dividends to shareholders.
Until quite recently, the company had just 16 employees, working on regulatory matters and strategy. Investment management is outsourced to fund managers Schroders and Henderson and all the back office work is done by external companies as well.
Kettleborough has a strong pedigree. Aged 53, he has been involved in life insurance since leaving school and has acquired a loyal shareholder following.
My colleague Andy Brough highlighted Chesnara in May, since when the company has gone from strength to strength. Closed-life businesses are cash-generative, but they do have a shelf life - as policyholders either choose to stop paying their premiums or die, the money earned gradually decreases.
Kettleborough intends to counter this by acquiring new businesses and in July he bought Swedish life business Moderna from a troubled Icelandic bank.
Such was the bank's need for cash that it sold Moderna for £20m even though the business has an underlying value of about £50m.
The deal was extremely well received by investors. Moderna is still open for business so it has more expenses than Chesnara's UK life operations, but Kettleborough is confident this will not affect dividend payouts.
In fact, Moderna is expected to make a meaningful contribution to earnings and support future dividends from 2012.
In the meantime, Moderna has taken the number of policyholders to 2.5 million and Kettleborough is looking for other acquisitions of up to £200m.
Midas verdict: Brokers forecast a dividend of 16.2p for 2009, rising to 16.7p the following year. The shares are 170p, so they are yielding nearly 10%, which is particularly attractive when savings rates are so abysmally low.
Kettleborough may ask shareholders to help fund an acquisition in the future, but he has recourse to bank debt as well and has pledged only to buy businesses that will enhance growth.
Chesnara is conservatively managed and has benefited from the stock market's strong run over the past three months. There has also been a raft of takeover activity in the life insurance sector and Chesnara is a classic bid target for a larger player. Buy.
Most watched Money videos
- BMW's Vision Neue Klasse X unveils its sports activity vehicle future
- Blue Whale fund manager on the best of the Magnificent 7
- BMW meets Swarovski and releases BMW i7 Crystal Headlights Iconic Glow
- MailOnline asks Lexie Limitless 5 quick fire EV road trip questions
- 'Now even better': Nissan Qashqai gets a facelift for 2024 version
- Tesla unveils new Model 3 Performance - it's the fastest ever!
- The new Volkswagen Passat - a long range PHEV that's only available as an estate
- Mini celebrates the release of brand new all-electric car Mini Aceman
- 2025 Aston Martin DBX707: More luxury but comes with a higher price
- Land Rover unveil newest all-electric Range Rover SUV
- Mini Cooper SE: The British icon gets an all-electric makeover
- Mercedes has finally unveiled its new electric G-Class
- Currys shares surge after profit guidance upgrade as...
- HMRC phone customers spent 798 YEARS on hold in single...
- I don't want smart meters, so Eon is charging me £316 to...
- Hundreds of jobs at risk as Anglo slashes funding for...
- Royal Mail's future hanging in the balance as bid...
- Axe stamp duty on British shares, says Flutter boss as...
- Tesco boss pockets £10m in biggest ever pay deal at a UK...
- Virgin Money UK warns of pressure on profits ahead of...
- Investors ramp up bets against BT as new boss prepares to...
- Marston's losses narrow amid hopes of summer sporting...
- How refreshing that Anglo has chosen not to grab the...
- I believe pre-nups are so vital every couple should be...
- My neighbour has started keeping bees - can I stop him?...
- Why 16 to 24-year-olds are putting their parents to shame...
- MARKET REPORT: Vodafone shares rally as investors cheer...
- De Beers eyes £4bn London float as Anglo bids to fend off...
- The new 5.05% limited access account that savers are...
- Santander offers £175 to switch your current account -...