Should I Buy Resolution?

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LONDON -- It's time to go shopping for shares again, but where to start? There are loads of great stocks to choose from, and I've got my wallet out. So here's the question I'm asking right now: Should I buy Resolution (LSE: RSL  ) ?

New Year's resolution
Anybody who loves a good yield will have already checked out Resolution. It's the highest yielding stock on the FTSE 100 (UKX), currently dishing out a stonking 9.43%, comfortably ahead of RSA Insurance Group (LSE: RSA  ) in second place, which yields 8.5%. It's a crazy yield, almost 19 times base rate. But does a crazy yield mean a crazy company? Let's see.

Friends for life
Guernsey-registered Resolution was founded in 2008 by entrepreneur Clive Cowdery with a bold and single-minded aim. He wanted to force consolidation in the U.K. life insurance industry, buying at least three underperforming insurers to generate cost savings and spin out the company on the stock market. Resolution bought Friends Provident in 2009 and took its place in the FTSE 100. In 2010, it snapped up AXA's U.K. savings and life assurance arm and Bupa's life, critical illness, and income protection business, bringing them together under the label Friends Life Group.

Cash cowed
Resolution's shares performed strongly last year, pleasing shareholders by returning 500 million pounds in share buybacks, after claiming there were no further acquisitions worth pursuing. Speculation that Resolution may change its nature -- from being the acquirer to the acquired -- didn't harm the share price, either. But Resolution has faltered this year, with a string of management changes, and growing concerns that what was supposed to be a cash cow for investors is running dry. The planned lucrative exit from what is now labelled the U.K. Life Project looks like being kicked further down the road.

Circle of Life
Since the launch, Resolution has been dogged by criticisms over the structure of the business, which is registered offshore to reduce tax exposure. It has even been threatened with losing its premium FTSE 100 listing, which would force many investors to automatically sell. Its Q3 results, published in November, revealed more bad news, as integrating AXA into its business has been more difficult and expensive than anticipated. Resolution has also been hit by a number of broker downgrades. UBS cut its rating from buy to neutral, blaming "disappointing nine-month trading, EV writedowns, U.K. restructuring charges, and recent share-price performance," which made the valuation less compelling. Investec confirmed Resolution as a sell on concerns over the cost of integrating AXA and lack of news on the proposed revised corporate structure. Nomura stuck to its "reduce" rating, due to Resolution's unattractive valuation and prospects, and disappointing international performance. Brokers say the FSA regulatory overhaul, the Retail Distribution Review, will only add to the uncertainty surrounding the U.K. Life Project.

Resolution failed
It isn't all bad news. New business increased to 138 million pounds in the first nine months of 2012, up from 95 million pounds in the same period last year. The group's capital position is "robust" and Resolution has minimal exposure to high-risk sovereign debt. And then, of course, there is that whopping yield. It pains me to turn down 9.43% a year these days, but this is one resolution I won't be making in the New Year.

Resolve to download this
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