Standard Life £200m plan rattles market

STANDARD Life's £200 million investment plans have unsettled analysts who are warning that a lack of clarity will continue to overshadow the firm's share price.

Some are concerned at how the level of spending outlined by chief executive David Nish can be squared with City pressure for a lift in the dividend.

Kevin Ryan, an analyst at Investec, said the insurer's shares were "fundamentally cheap" as they hovered about 11 per cent below its 2006 flotation price of 230p despite predicting "solid" performance in the first half of the year.

Nish came in for criticism at the full-year stage with a lower dividend payment than his peers. Standard Life is expected to boost its interim payout by 5.3 per cent to 4.58p on Wednesday, which is lower than the predicted 5.8 per cent dividend boost average expected among mid to large cap UK-listed insurance firms across the UK.

Ryan warned that the 200m investment for an upgrade of its distribution platform had "worried" and "shocked" the market.

He added that the firm's share price will "continue to drift" unless Nish spells out how the firm can spend money and continue to increase dividends when its half year results are announced.

"We think it shocked the market to learn at the FY 2010 results that the company has invested 149m, and intends to invest a further 200m in 2011," said Ryan in a circular to investors.

More clarity on the firm's cost-cutting has also been demanded, with expectations that the firm has already cut 34m from its costs and will slash a further 30m this year.

Last year Standard Life announced plans to make hundreds of workers redundant at its Edinburgh headquarters, axing 600 posts throughout the business in a bid to cut 100m in costs by the end of this year.

Panmure Gordon said Standard Life shares represent an "attractive" investment opportunity but that the firm should try to demonstrate how the cuts are affecting profits.

Barrie Cornes at Panmure said the company was in a "period of change, whereby it is cutting costs and investing for the future customer proposition" and it was "well placed for the industry challenges of RDR (retail distribution review]", but he kept the shares on "hold".

RDR will scrap commissions and demand higher quality training for salesmen.

Consensus forecasts are for interim operating profits of 198m for the Edinburgh-based insurer and a 10.6 per cent rise in assets under administration to 198 billion.