Retirement products business Just Group (LSE: JUST) has had a mixed time as a public company. It floated towards the end of 2013, and the shares quickly soared 35% above the initial public offering (IPO) price. The euphoria didn’t last. A year later, the stock was trading below the IPO price, as investors struggled to buy into the growth story.
Just was formed to develop and sell retirement products into the UK market. That’s a tough ambition at the best of times, but it’s even harder for a new business trying to break into the market. The UK retirement savings market is dominated by giants such as Legal & General, Aviva and Prudential, which have been around for generations. People know and trust these brands.
Just’s problems came to a head in 2020-2021, when it was forced to confront the lack of growth. Shares in the company had fallen in value to below 40p, and the market’s confidence had all but evaporated. Just responded by revisiting its long-term plan and laying out a new road map to return to growth. This involved the group selling the bulk of its lifetime mortgage portfolio to free up capital. It also received clearance to re-jig its capital model and raised £565 million in new equity and debt.
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As part of the plan, management outlined the goal to grow its operating profit at 15% per annum over the next five years, implying an operating profit target of £422 million, up from £211 million in 2021 (a target it has since hit two years early with a profit of £504 million reported for 2024). Today, the company is focused solely on annuities.
Just Group and the resurgence in annuities
This is a large and growing market with two main business lines: bulk-purchase annuities (BPAs) and individual annuities. The products are broadly similar. With a BPA, corporate defined-benefit pension schemes can choose to move their pension obligations to an insurer, which takes on all the liabilities in return for a premium. According to Lane, Clark & Peacock, a specialist pension consultancy, transfers in this market could reach as much as £900 billion, with an average of £50 billion per annum agreed over the next ten to 12 years.
Individual annuities, on the other hand, are retirement products bought by individuals from insurance companies. At the time of retirement, an individual can choose to roll their pension into an annuity, which gives a guaranteed income every year. The big difference between these and BPAs is the latter tend to be inflation-linked.
Both products have seen a resurgence in recent years, thanks to higher interest rates. Higher rates have boosted pension-scheme funding levels, enabling companies to move towards a BPA without having to pay too much of a premium. Meanwhile, individual annuity rates have surged above 7.7% on average (an investment of £100,000 buys an annual income of £7,700), the highest rate in more than a decade.
This has been a boon for the company. Just Group closed 129 BPA deals in 2024, giving it a 45% market share. That’s partly down to the company’s ability to innovate and capitalise on a market opportunity. For example, while its peers have pursued larger, multi-billion-pound BPA schemes, Just has developed innovative technology to support smaller schemes. It has created a tool called Beacon, its bulk quotation and price-monitoring service platform, which is designed to provide a quick, standardised BPA agreement for schemes. The 350 schemes taken on through the platform typically have less than £100 million in liabilities.
Just has a much smaller share of the individual annuities market (around 12%), but it has big ambitions. The individual annuity business has also experienced significant growth, with a 34% increase in 2024 overall and 17% growth for Just. At present, £60bn of defined-contribution pensions are reaching the stage at which an annuity can be purchased, and Just estimates the market will grow at 10% per annum.
Just Group is just getting started
It’s taken the best part of a decade for Just to build the capital and reputation required to build out its businesses in these markets. Last year, the company earned an 8.7% margin on new business – the difference between the investment return on the assets backing the annuity and the yield paid to the annuity holder, less expenses. Just can earn more on the assets than a smaller scheme due to economies of scale and the benefits of investing in illiquid assets not being available to smaller players. The group has investments in property, private credit, infrastructure, commercial real estate, social housing and direct lending to small businesses. The book of existing business also contributes to the bottom line. This income is expected to more than double from 2023 to 2028, according to Berenberg, helping the company’s underlying pre-tax profit grow at a compound annual rate of 10%.
Thanks to the volume of new business arriving, coupled with the increasingly productive back book, Berenberg estimates Just can increase its net tangible asset value (a more appropriate metric of value than price-to-book or price-earnings ratio in this case) by 12% on a compound annual basis until 2027, from 254p at the end of 2024 to 363p by 2027. Compared with the company’s current share price of 125p, that is great value. As its book of productive businesses continues to grow, the firm is also expected to increase its dividend, from just under 2% to 3.4%. With the wind behind it, Just’s growth only just seems to be getting started.
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