Citi upgrades Phoenix Group to 'buy' from 'neutral'

(Sharecast News) - Citi upgraded Phoenix Group on Wednesday to 'buy' from 'neutral' and lifted the price targe to 730p from 537p as it pointed to balance sheet flexibility and a growing franchise. "Phoenix is changing," Citi said in a research note.

"Having been known as a back book consolidator it has since developed a leading Bulk Annuity franchise and the next step should see it further strengthen its position in retirement savings by retaining more of its existing customers and harnessing structural Workplace pension growth."

The bank said that combined with emerging cost efficiencies, reduced debt leverage and potential improvements to the hedge programme, the outlook is bright and a dividend yield of 9% seems very well supported.

"The shares can begin to close a 35% valuation discount versus peers," it said.

Citi said it estimates a recurring free cash flow yield of 14% rising to 19% by 2027, or 24% in its upside scenario.

At 1010 BST, the shares were up 1.5% at 631p.