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Investing.com -- BofA Securities has downgraded Phoenix Group Holdings (LON:PHNX) to “neutral” from “buy,” citing limited upside potential following a strong year-to-date rally in the stock price, in a note dated Thursday.
The brokerage set a new price objective of 668p, marginally above the current share price of 642.5p.
The decision to lower the rating reflects a more tempered return outlook. Phoenix shares have gained 32% year-to-date, but analysts at BofA now see only a 13% total return potential.
The analysts noted that while the company has made progress in addressing concerns around falling shareholders’ equity, valuation has become less compelling compared to peers.
Phoenix’s 2025 estimated dividend yield of 8.5% remains high in absolute terms and is the third highest in the FTSE 100, supported by a 2.5% annual growth expectation under a progressive dividend policy.
However, BofA said this yield is less differentiated when adjusted for sovereign yields. With the UK 10-year bond yield at 4.7%, Phoenix’s yield spread over the sovereign is 3.8%, ranking it in the lower half of European insurers.
The downgrade also reflects continued concerns around declining shareholders’ equity.
Although Phoenix’s new CFO provided reassurances about the sustainability of the dividend, analysts expect shareholders’ equity to keep falling until at least 2027.
The company is trading at 8.6 times its estimated 2026 shareholders’ equity and 1.8 times its estimated 2026 total comprehensive equity, levels that could raise caution for some investors.
“These multiples may raise concerns for some investors, even if the concerns are driven by accounting rather than economics. Any increases in UK 10-15 year bond yields could further exacerbate concerns,” BofA analysts wrote.
Despite these concerns, Phoenix has shown strong performance in its new business segment. Since acquiring Standard Life (LON:ABDN) in 2018, the company has posted one of the fastest contractual service margin (CSM) growth rates in the sector, at a 6.7% compound annual rate through 2027.
A potential rebranding of the group to Standard Life, as reported in the Financial Times, may boost perceptions of Phoenix as a growth-oriented insurer.
However, BofA cautioned that tangible growth in shareholders’ equity will be necessary to fully support this narrative.
The brokerage’s revised estimates show slight upgrades to operating profit and EPS through 2027, but dividend estimates remain unchanged.