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article from the uk times

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    HHG still a good punt after life assurer returns to market
    By Robert Cole



    HHG, the life assurer and investment manager, has turned out to be something of a steal for investors who bought in at the time it floated last December. The company’s shares have jumped 73 per cent in a little over three months.
    The bumper gains partly reflect the discount price at which shares were sold in the first place. Marketed under the banner of “there is a price for everything” by the broker Cazenove, the stock was priced at 30p against a 43p book value.



    Cazenove and fellow adviser UBS argued that they had to sell the shares cheaply because AMP, HHG’s parent, was in so much distress. The Australian financial group had strayed into the UK life assurance market at the wrong moment and shareholders Down Under were demanding that AMP seek a sharp exit.

    Appetite for HHG shares remains strong. Yesterday the company returned to the market earlier than expected to raise a further £118 million. Despite reports that the placing would again be heavily discounted, investors paid 48p against a closing price of 49¼p on the previous day. The shares reached 52p last night.

    HHG needs the cash to buy an outstanding 24 per cent stake in the holding company that controls Henderson Global Investors, the fund management business. HGI was not owned directly by AMP but by the life fund of Pearl Assurance, which sat under the AMP umbrella.

    The willingness of investors to pay up for HHG may stem from their failure to obtain sufficient stock at the first placing, which was seven times oversubscribed. But they also have a far clearer picture of the business after the set of full-year results, the group’s first since it floated.

    Assuming a replay of the second half of 2003 this year, total operating profits would approach £300 million. Fund managers are typically valued at between three and five times operating profits. With a market cap of £1.2 billion, that puts HHG bang in the middle.

    Caution is needed because there are plenty of sellers of the stock, including a horde of Australian private investors, as well as AMP, which is free to start selling its remaining 11 per cent stake from next August. Ultimately, however, HHG is a punt on the direction of markets. Since they look set to advance northwards, HHG shares are worth holding.


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