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JRP Group (JRP) – VectorVest expects a re-rating based on strong sales growth

JRP Group plc, formerly Just Retirement Group plc, is a UK-based financial services company. VVUKlogoIn April, the merger with Partnership Assurance completed, following which the Company now provides retirement income products, services to individuals and corporate clients and insurance products. JRP also provides individually underwritten annuities (IUAs) and equity release lifetime mortgages (LTMs). In the IUA market it offers better annuity rates compared with standard annuity providers.

The Company has focused primarily on the core segments of the IUA market (medically enhanced and lifestyle). The LTM product provides a longevity hedge and a high risk-adjusted yield, whilst supporting the credit profile of Just Retirement’s investment portfolio. During the year, the merger with Partnership Assurance completed.

On November 3rd, JRP issued a new business update for the nine months to 30 Sept 2016. Total sales grew 21% during the period on a pro forma basis, and the company confirmed IFRS new business margin guidance of 6% for the full calendar year. CEO Rodney Cook said the benefits of the merger to the JRP Group “continue to be demonstrated through both strong sales growth announced today and favourable margin development announced in September.” He added: “we are successfully adapting our business model to the new capital environment and remain confident of achieving attractive internal rates of return on new business once the synergy benefits are fully realised.”

The potential in JRP was flagged up by VectorVest long before the Partnership Assurance merger completed. Shares have drifted lower since the merger, but the VectorVest Value metric points to a current value of 182.88p per share, meaning the stock is significantly undervalued compared to its current price of 116.50p per share. Added to this, Earnings Growth Rate (GRT), which reflects a company’s one to three year forecasted earnings growth rate in percent per year, points to a forecasted GRT of 24% for JRP, which VectorVest considers to be excellent.

VV_JRPchtThe chart of JRP.L is shown. During April 2016 the VectorVest program re valued the share as shown by the green line above the price. The Earnings per Share (EPS) increase over the past 6 months is shown in the window below the price.

JRP would seem to be charting an inverted head and shoulders reversal. Technical analysts use the height of the head (shown on the chart by the vertical line) to project a target from this evergreen TA pattern. This calculation points to a technical target from JRP of around 200p, which is similar to the VectorVest calculated value.

Cautious traders will wait for the neckline of the head and shoulders reversal pattern to be exceeded prior to entry. This would be a daily close above 140p. More aggressive traders may wish to enter prior to the breakout of the pattern. There is strong justification for an early entry as the fundamentals are good and also the stochastic indicator is much oversold. The stochastic indicator is also charting a strong reverse divergence with price. The divergence is shown by the trendlines in red on the chart. This is a very bullish signal. Aggressive traders should consider a trade in JRP when the upward move is confirmed by VectorVest changing its recommendation from HOLD to BUY.

With the merger synergies still yet to be fully realised, VectorVest believes the strong sales growth and forecasted earnings should lead to a substantial upward re rating for JRP stock before too long.

David Paul

November 10th 2016

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