We set a GBP 6.23 target price based on a sum-of-the-parts valuation whereby we forecast 2025e divisional underlying free cash flow capacity (using capital generation as a proxy). The divisional free cash flows are discounted back to today and then valued into perpetuity (a similar concept to the dividend discount model) by applying a bottom-up cost of equity.  The cost of equity is 9.1%, comprised of 4.3% weighted average ten-year govt yield, 4% equity risk premium, 0.8% business risk premium, and 0.0% specific risk premium.

Key risks to our target price include 1) insurance risks such as lapses and longevity, 2) macro risks such as credit and interest rate movements, 3) regulatory risk, and 4) future M&A risk, which could be positive or negative depending on the type/pricing of the transaction. If these risk factors have a more or less negative impact than we anticipate, then the share price could deviate significantly from our target price.