Is Phoenix Group poised for win-win with FY26 buybacks?

Investing.com -- Phoenix Group Holdings (LON:PHNX) is preparing to enter a new phase of shareholder distributions, with analysts at RBC Capital Markets projecting the launch of an annual £250 million share buyback program from fiscal 2026 results. 

The move, they argue, would deliver a “win-win scenario: a potential rerating or highly accretive SBBs.”

The London-listed insurer, whose shares trade at 623p, remains valued at a steep discount of about 35% below management’s estimate of intrinsic worth. 

At this level, Phoenix’s implied cost of equity is roughly 15%, nearly 50% above the peer average. 

RBC said this disconnect, combined with upcoming capital deployment flexibility, underpins its reiterated “outperform” rating and a raised price target of 735p from 690p.

Debt reduction is central to Phoenix’s ability to fund incremental payouts. The group redeemed £200 million of debt in the first half of 2025 and is expected to repay a further £197 million in the second half, followed by £150 million in early 2026. 

These measures are forecast to bring its Solvency II leverage ratio down to 29.9% in fiscal 2026, converging with sector levels. “Leverage within control… supporting share buybacks at FY26 results,” analysts said.

Cash generation has also strengthened. Phoenix reported operating cash generation of £705 million in the first half of 2025, up 9% year over year, leaving the group on track for £5.1 billion across fiscal 2024 to 2026, in line with guidance. 

Parent company reserves stood at £5.6 billion as of December 2024, compared with a dividend cost of about £0.5 billion in fiscal 2025. “We see no constraints to current or future payouts,” RBC said.

The dividend remains a cornerstone of Phoenix’s returns. Analysts forecast 2.5% annual growth in the payout, taking the dividend per share to 58.19p by 2027. 

The yield is expected to rise from 8.9% in 2025 to 9.3% by 2027, with average dividend coverage of 1.8 times between fiscal 2025 and 2027.

By fiscal 2026, forecasts show more than £200 million of surplus cash generation annually after dividends. 

RBC estimates the combination of dividends and buybacks will lift Phoenix’s total capital return yield to 13%, among the highest in the peer group.

“Once leverage is down, PHNX has stated it will deploy excess capital to the highest returning opportunities,” the analysts noted.

The broker also highlighted Phoenix’s structural progress. Operating profit is projected to grow to £1.1 billion in 2026, supported by efficiency gains in its pensions and savings business. 

Cash flows are forecast to keep rising, with operating cash generation expected to reach £1.65 billion by 2029.

RBC analysts said Phoenix’s high dividend yield and imminent capital flexibility are not fully reflected in its valuation. 

“Despite progress on de-leveraging and organically growing cash generation, PHNX’s implied cost of equity is c. 50% higher than the sector average,” they said.