Keith Skeoch

Analysts have voiced concern at the senior management reshuffle at Standard Life with one broker downgrading the UK insurer, despite a slight jump in the company’s share price.

Standard Life’s share price has increased by 0.6 per cent since the announcement on June 19 that Keith Skeoch, the company’s asset management chief, would also become head of its insurance business.

Analysts at Nomura, the Japanese bank, have advised shareholders to reduce their holdings in the company, believing Standard Life is overvalued compared with its investment-focused peers, such as St James’s Place and Hargreaves Lansdown.

The company is trading at a premium to traditional asset management groups, despite generating most of its earnings from its insurance business.

Although Nomura believes Mr Skeoch is a “sound appointment” as group CEO, the broker adds that it does not expect any major change in strategy that would “help to further justify the current valuation”.

Ben Bathurst, European insurance research analyst at Nomura, says: “In comparison with the life peer group, where strong third-party asset management businesses are a feature of most, the stock stands out as expensive.

“Even after assigning relatively generous valuations to the group’s well-positioned asset management [business], we are unable to reach the current market valuation for Standard Life.”

Eamonn Flanagan, equity analyst at Shore Capital, agrees: “The share price does look expensive — the valuation is looking a bit rich. But I think it will remain at this price and tread water for a while.”

Mr Flanagan says the appointment of Mr Skeoch, whose professional experience is rooted in fund management, gives rise to concerns. Standard Life needs to remember where its dividends come from, he says: “Life and pensions are still the big drivers”.

The company’s insurance operations account for 52 per cent of its earnings, although the group is increasingly leaning towards investment management: in March 2014 it paid £390m for Ignis Asset Management while in September it sold its Canadian insurance business for £2.2bn.

The greater focus on investment management comes as the UK government has removed the requirement for pensioners to use their savings to purchase an annuity, allowing retirees greater freedom of investment.

Michael Holland, managing director of FE Trustnet, the data provider, adds: “Given the vertically integrated nature of the business, it will be interesting to see how the new chief balances the conflicting priorities of the different business units.”

Amin Rajan, chief executive of Create Research, the consultancy, believes the appointment of Mr Skeoch, who replaces David Nish on August 5, is a positive one.

“Standard Life Investments has been the growth engine at Standard Life. The dual role [of Keith Skeoch] makes sense if SLI is to remain so. If SLI continues to expand, market analysts will have to decide whether to rate the parent company as an insurer or as an asset manager. Currently, the latter commands a higher rating.”

Alan Devlin, equity analyst at Barclays Capital, adds: “Standard Life has already been focusing very much on the investment division, and we expect it to generate more than 50 per cent of the group’s earnings this year.

“Standard Life has been drifting towards asset management for a while. The new pensions and platform businesses are asset management-like and increasingly important distribution channels for SLI products. This journey was started a long time ago by David Nish, and therefore it is natural for Keith to be the new chief executive.”

When Mr Nish walks away from Standard Life he will pocket as much as £25m for his spell running the Scottish financial services group for less than six years.

Mr Nish said he had “mixed emotions” about leaving but that it was “the right time to pass the baton”. The announcement took some analysts off guard.

Mr Flanagan of Shore Capital says: “That uncertain aspect of the announcement makes you think about the timing, that maybe it was not up to Mr Nish. If that uncertainty continues for too long, shareholders could start to grumble.”

Rumours of a forced exit have been denied by Standard Life. The group has highlighted that its market capitalisation rose from £4.8bn to £9.3bn under Mr Nish’s leadership, during which time it paid out a total return to shareholders of 191 per cent.

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