Should you make an investment in Just Group?

The retirement products company Just Group is in a good position to benefit from the expanding annuity market

Since going public, the retirement products company Just Group (LSE: JUST) has experienced mixed results. By the end of 2013, it floated, and the shares immediately shot up to 35% above the IPO price. The ecstasy was short-lived. As investors found it difficult to believe in the growth story, the stock was trading below the IPO price a year later.

Just was established with the goal of creating and marketing retirement products in the UK. That's a challenging goal in any situation, but it's much more difficult for a startup company looking to enter the market. Big, multigenerational companies like Legal and General, Aviva, and Prudential control the UK retirement savings market. These brands are well-known and trusted.

Just's issues reached a breaking point in 2020 - 2021, when it had to face the lack of expansion. The company's stock had dropped to less than 40p, and the market's trust had virtually vanished. Just responded by reexamining its long-term strategy and outlining a fresh plan of action to resume growth. In order to raise money, the group had to sell the majority of its lifetime mortgage holdings. Additionally, it was approved to raise £565 million in new debt and equity and restructure its capital model.

In the plan, management stated that it would increase operating profit by 15 percent annually over the following five years, which would mean that operating profit would reach 422 million instead of 211 million in 2021 (a target it has since surpassed two years early with a profit of 504 million reported for 2024). The company's current focus is entirely on annuities.

Annuities and Just Group's comeback.

Bulk-purchase annuities (BPAs) and individual annuities are the two primary business lines in this sizable and expanding market. The goods are essentially the same. Corporate defined-benefit pension plans have the option to transfer their pension responsibilities to an insurer through a BPA, which assumes all liabilities in exchange for a premium. Specialist pension consultancy Lane, Clark & Peacock estimates that transfers in this market could total up to 900 billion, with an average of 50 billion agreed upon annually over the next 10 to 12 years.

Annuities purchased by individuals from insurance companies, however, are retirement products. One option available to a person upon retirement is to convert their pension into an annuity, which provides an annual income guarantee. The primary distinction between these and BPAs is that the latter are typically linked to inflation.

Due to rising interest rates, both products have experienced a resurgence in recent years. Due to increased pension-scheme funding levels brought about by higher rates, businesses can now transition to a BPA without incurring significant premium costs. Individual annuity rates, on the other hand, have risen to their highest level in over ten years, surpassing 7 percent on average (an investment of £100,000 yields an annual income of £7,700).

This has benefited the business. With 129 BPA transactions closed in 2024, Just Group held a 45% market share. The company's capacity to innovate and seize market opportunities is partially responsible for that. For example, Just has created cutting-edge technology to support smaller schemes, whereas its competitors have pursued larger, multi-billion-pound BPA schemes. To give schemes a speedy, standardized BPA agreement, it developed a tool called Beacon, its bulk quotation and price-monitoring service platform. Typically, the 350 schemes that are accepted through the platform have liabilities of less than £100 million.

Just has a much smaller share of the individual annuities market (around 12 percent), but it has big ambitions. Significant expansion has also been seen in the individual annuity market, which grew by 34% overall in 2024 and by 17% for Just. The market is expected to grow by 10% annually, with 60 billion defined-contribution pensions currently approaching the point where an annuity can be bought.

Just Group is just getting started.

Building the capital and reputation necessary to expand its businesses in these markets has taken Just the better part of ten years. Last year, the company earned an 8.7 percent margin on new business the difference between the investment return on the assets backing the annuity and the yield paid to the annuity holder, less expenses. Because economies of scale and the advantages of investing in illiquid assets are not accessible to smaller players, Just can make more money on the assets than a smaller scheme. Property, infrastructure, private credit, commercial real estate, social housing, and direct lending to small businesses are among the group's investments. Another factor that affects the bottom line is the book of current business. From 2023 to 2028, Berenberg predicts that this income will more than double, contributing to the company's underlying pre-tax profit growing at a compound annual rate of 10%.

Berenberg believes Just can increase its net tangible asset value (a better measure of value than price-to-book or price-earnings ratio in this case) by 12% on a compound annual basis until 2027, from 254p at the end of 2024 to 363p by 2027, thanks to the volume of new business coming in and the increasingly productive back book. That is excellent value when compared to the company's current share price of 125p. The company's dividend is anticipated to rise from slightly less than 2 percent to 3 percent as its book of profitable operations keeps expanding. With the wind at its back, Just's growth appears to be just beginning.

A line graph showing the Just Group (LSE: JUST) share price in pence from 2021 to 2025 shows a generally rising trend.