Standard Life Flotation

You will have heard that Standard Life has secured near unanimous approval from its members to float on the London Stock Exchange. It is estimated that up to 2.4 million qualifying Standard Life members will receive free shares.

What should they do with the shares?
How will it work?
How will it affect their Standard Life investments?

Hargreaves Lansdown is currently preparing a free report to tell you more about the flotation and the prospects for the shares – it will contain expert comment from Richard Hunter, Head of UK Equities. It will be published once Standard Life issue final details. This article contains an extract from the draft report which can be requested free of charge from the Hargreaves Lansdown website.

Strengths and weaknesses....

Standard Life has been described as a recovery story, which is very much what the market likes to hear in current times. In addition, the company’s recent return to profit has been due in no small part to the boom in Self Invested Personal Pensions (SIPPs) for which it has been a leading player. We do not know exactly how much of the recent turnaround was due to the surge in SIPP sales before A Day (5th April 2006 when pension rules were overhauled)?

It has also been widely reported that demutualisations are sometimes not good news for members as they become shareholders. One reason for this is that, on average, listed companies need to make 35% higher profits to afford dividend payments without putting pressure on the cost of their products.

…Opportunities and threats

The most obvious opportunity as a business is the potential Standard Life has as a bid target.

Another opportunity will come via the actual float itself – the company is currently subject to the sort of business, regulatory and competitive pressures for which an injection of capital can be put to good effect but the question to ask is can the company do this successfully based on previous performance?

There are a number of threats to the business, not least of which concerns any profit or fund underperformance. Similarly, it is reported that the majority of Financial Planners will be looking very closely at the With-Profits performance for their clients, which has underperformed for some time, and are simply holding on before taking any action until the float has been completed.

From an operational perspective, any successful takeover approach, especially if from another UK company, would undoubtedly result in a severe cost cutting programme – with every likelihood of further job cuts – which could threaten to destabilise the business.

Finally, the current state of the market may not help.

This could well be one of the largest and most interesting flotations for some time now and with Hargreaves Lansdown’s report, you will have free access to our latest thinking about the company. Of course, as we get closer to the actual date of flotation the market’s view will become clearer and will therefore be covered in our report. Visit the Hargreaves Lansdown website to request a free copy of the full report.