Just Group, although a smaller player in the UK’s £40 billion life insurance industry, has attracted interest due to its straightforward business model, steady growth, and low valuation, achieving a modest 1 percent gain over the past year.

The company came into existence after the merger of Just Retirement and Partnership Assurance in 2016, both of which faced significant challenges following the 2015 pension freedom reforms that eliminated mandatory annuities.

Currently, the company is experiencing robust business growth, significantly aided by rising interest rates, with shares reaching their highest levels in six years.

Just Group operates principally through two divisions, with the largest being its pension “de-risking” segment, where it assumes pension liabilities from companies.

The improvement in interest rates has positively impacted the funding status of defined benefit pension schemes, many of which are now closed to new members in the private sector. This has allowed employers to mitigate their financial risks by transferring liabilities to insurance firms.

Last year, Just Group generated £3.9 billion from retirement income sales, with £3.4 billion resulting from transfers out of defined benefit pension schemes. The company executed 55 transactions in the first half of this year, a notable increase from 35 the previous year, with new business rising by 31 percent to £1.9 billion.

This growth is reflected in its financial performance, as underlying operating profits surged by 44 percent to £249 million, surpassing expectations by 20 percent. The company’s return on assets now stands at 15.6 percent, well above its target of 12 percent.

While analysts caution that Just Group must avoid overextension, its balance sheet appears robust, boasting a Solvency II ratio of 196 percent, significantly exceeding the 180 percent threshold that indicates surplus capital.

Management has effectively decreased the balance sheet’s exposure to fluctuations in interest rates and property values. For instance, a 50 basis point decrease in interest rates would now lead to only a 4 percentage point decline in the Solvency II ratio, a notable improvement from a 6 percentage point drop perceived at the end of the previous year, according to Jefferies’ analysis.

The second significant line of business for Just Group is its retail division, which provides annuities—ensuring guaranteed pension income in exchange for a lump sum—to individuals planning for retirement. The rise in long-term interest rates has also positively influenced annuity sales, which increased by 28 percent to £600 million in the first half of this year.

Life insurers in London are typically valued at lower rates primarily due to the complexity of their business operations. Investors often prefer companies that can offer substantial dividends; however, Just Group’s expected yield of 2.1 percent over the next year falls short when compared to larger competitors like Aviva and Legal & General, which are projected to yield 7.5 percent and 9.6 percent, respectively.

Nonetheless, Just Group effectively reinvests its earnings, achieving strong returns. The long-term growth potential appears promising in the bulk annuity market as well as a resurgence in demand for retail annuities. On a price-to-book ratio, which evaluates market value in relation to total assets minus liabilities, Just is among the most competitively priced insurers at a ratio of 1.2, favorable compared to its larger counterparts.

In summary, Just Group presents a compelling investment opportunity, demonstrating a solid foothold within a growing segment of the insurance market.

Aberforth Smaller Companies Trust

Investors often aspire to identify future FTSE 100 stars, a task where the £1.4 billion Aberforth Smaller Companies Trust has shown promise. This fund targets small-cap companies trading below their intrinsic value.

Since its inception in 1990, the trust has prioritized diversification with approximately two-fifths of its £1.6 billion portfolio in FTSE 250 firms, alongside 45 percent in the FTSE Small Cap index. The fund encompasses nearly 80 different holdings across various sectors, including industrials, consumer discretionary, and financial services.

In the past two years, the fund has delivered a nearly 50 percent total return to shareholders, a result of heightened merger and acquisition activity. Between early 2022 and April 2024, there were 37 takeovers within the fund’s benchmark, including several of its holdings.

The fund also boasts a commendable dividend history, with 13 consecutive annual payout increases and a notable history of special dividends, currently yielding about 2.5 percent.

Presently, shares in the fund are trading at an 8 percent discount to their net asset value, representing an attractive opportunity for investors aiming for diversification beyond the FTSE 100.

In conclusion, the Aberforth Smaller Companies Trust continues to exhibit a successful track record in identifying valuable UK stocks.