Standard Life in line for flat profits as difficult conditions persist

WEAK financial markets and the loss of a pension scheme contract will put Standard Life under pressure this week as chief executive David Nish unveils interim results.

Analysts expect the Edinburgh-based life and pensions giant to post largely flat profits on Tuesday but reveal that difficult trading conditions – which hit new business volumes in the first three months of the year – are likely to have continued into the second quarter.

Ashik Musaddi, insurance analyst at JP Morgan Cazenove, has forecast new business sales of around £4.9 billion for the second quarter, a fall of 9 per cent compared with the same period last year.

While this year’s figures will suffer in comparison to the second quarter of 2011, which saw record sales of group ­pensions, Musaddi said weak markets have also affected sales of investments and ­savings products.

He added: “Standard Life guided at its first-quarter sales update that it expects sales from group pensions to pick up from the second half of this year due to auto-enrolment.”

Auto-enrolment, which will require employers to automatically enrol their staff in a pension scheme, is being phased in gradually, with the largest firms having to comply with the new rules this autumn. Standard Life has estimated the shake-up could add an extra 400,000 savers to the 35,000 pension schemes it runs for corporate clients.

The group is also poised to benefit from the implementation later this year of the retail distribution review (RDR), which will ban providers from paying commission to financial advisers for selling their products.

Instead, consumers will have to pay a fee to cover the cost of advice.

Panmure Gordon has said that Standard Life is “probably one of the best equipped” firms to cope with the challenges posed by the RDR because it has not offered commission on new products since 2004. The broker is predicting a second-quarter operating profit of £265 million, up 1 per cent on last year, while JP Morgan expects profits to be flat at around £261m.

The group’s fund management arm, Standard Life Investments (SLI), lost a £1.8bn pension scheme contract in April, but this has been described as a “low margin” mandate and net inflows into SLI are expected to remain largely unchanged at £1.1bn.

Consensus estimates are for group assets under management to fall by 3 per cent to around £204bn, mainly due to weak stock markets and the lost pension scheme contract.

Deutsche Bank analyst ­Oliver Steel said: “We expect accelerating inflows later this year and 2013, boosted by ­auto-enrolment and RDR. But we think it is too early, particularly in fragile markets, for these to have fully developed in the second quarter.”

Despite the predicted declines in sales and profits, most analysts are expecting Standard Life to raise its interim dividend to 4.85p a share, up 5 per cent from last year.