Is Now the Time to Buy Resolution Limited?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at Resolution  (LSE: RSL  ) to determine whether you should consider buying the shares at 264 pence.

I am assessing each company on several ratios:

Price/Earnings (P/E): Does the share look good value when compared against its competitors?

Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?

Yield: Does the share provide a solid income for investors?

Dividend Cover: Is the dividend sustainable?

Let's look at the numbers:

Stock Price 3-Yr. EPS Growth Projected P/E PEG Yield 3-Yr. Dividend Growth Dividend Cover
Resolution 264p -36% 10.9 0.5 8% 16% 0.9

The consensus analyst estimate for this year's earnings per share is 24.1 pence (22% growth) and dividend per share is 21.2 pence (no growth).

Trading on a projected P/E of 10.9, Resolution appears cheaper than its peers in the life insurance/assurance sector, which are currently trading on an average P/E of around 13.4.

Furthermore, Resolution's P/E and double-digit growth rate give a PEG ratio of around 0.5, which implies the share price is cheap for the near-term earnings growth the firm is expected to produce.

Supporting an 8% yield, Resolution's dividend yield is significantly above the sector's average yield of 3.9%. In addition, Resolution has a three-year compounded dividend growth rate of 16%, implying the yield could continue to stay above that of its peers.

However, it appears that Resolution is not able to cover its dividend with its current earnings.

Having said that, Resolution's management states within its full-year report that "our dividend is 117% covered by cash from our businesses," which implies that the dividend is covered just under 1.2 times by free cash flow.

So, is now the time to buy Resolution?
Insurance holding company Resolution has made significant progress during the past year, growing pre-tax profits to 66 million pounds, up from a loss of 268 million pounds during 2011.

In addition, the value of new business acquired by the company's U.K. insurance operations grew 125% throughout 2012, and management is aiming to improve U.K. sales by a further 10% this year.

That said, Resolution's international insurance operations did underperform the rest of the group, reporting a 9 million-pound loss for 2012, compared to a 72 million-pound profit for 2011. However, it appears the majority of this loss was due to restructuring charges, which cost the group 82 million pounds. Excluding these charges, the company's international operations would have reported a profit.

Moreover, Resolution, recently entered the investment management market and now manages 11 billion pounds of fixed-interest assets and should benefit from the current strength in equity markets.

So overall, based of Resolution's projected near-term growth and solid dividend yield, I believe now looks to be a good time to buy Resolution at 264 pence.

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In the meantime, please stay tuned for my next verdict on a FTSE 100 share.


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