Load up on Hast­ings for cheap rat­ing and 5.3% div­i­dend yield

It’s time to go against the crowd and shop for bar­gain in­sur­ers

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The mar­ket has fallen out of love with gen­eral in­sur­ance com­pa­nies due to var­i­ous mar­ket is­sues such as grow­ing com­pe­ti­tion, fall­ing pre­mi­ums and ris­ing cost of claims.

De­spite this neg­a­tive back­drop, we be­lieve now could be a good time to go hunt­ing for bar­gains in the be­lief that the bad news is now priced in.

One share that catches our at­ten­tion is Hast­ings (HSTG).

Its shares are cheap, it has an at­trac­tive div­i­dend yield­ing a prospec­tive 5.3% and the busi­ness is fo­cused on be­ing profitable rather than chas­ing growth on thin mar­gins.

The com­pany’s value is down by nearly 20% since De­cem­ber 2017. Set­backs in­cluded a slight revenue miss for its 2017 re­sults and greater pay­outs due to ice and snow in its first quar­ter to 31 March 2018. How­ever, the com­pany re­it­er­ated it is on tar­get to meet its 2019 ob­jec­tives.

One of these tar­gets is to hit 3m cus­tomers by next year; 2017 re­sults re­vealed 2.6m cus­tomers. It has an es­ti­mated 7.3% share of the mo­tor in­sur­ance mar­ket.

Beren­berg an­a­lyst Ian Pearce says a 12% share price fall fol­low­ing a small revenue miss and op­er­at­ing earn­ings beat at the full year re­sults was un­jus­ti­fied.

‘Slightly lower growth in 2017 was off­set by su­pe­rior prof­itabil­ity, which we be­lieve

can be pro­jected for­wards. In­deed, we be­lieve these re­sults ex­hib­ited the dis­ci­plined nature of the com­pany’s growth strat­egy. This is why we pre­fer Hast­ings to some peers which have more reck­less growth am­bi­tions.’

Hast­ings has in­vested in its busi­ness in prepa­ra­tion of fu­ture growth. It should soon com­plete the im­ple­men­ta­tion of Guidewire, its claims and un­der­writ­ing plat­form. This will al­low its legacy plat­form to be closed and re­move dual op­er­at­ing costs, ex­plains Pearce who be­lieves Hast­ings has the best IT sys­tems in its field.

Hast­ings added 292,000 net poli­cies in 2017 ver­sus an av­er­age of 299,000 over the past five years. While that un­der­stand­ably trou­bled the mar­ket, in­vestors seem to have ig­nored the fact that prof­itabil­ity came in ahead of ex­pec­ta­tions.

‘We ex­pect Hast­ings will

see in­creas­ing re­ten­tion rates over time,’ says Pearce. ‘It has a rel­a­tively im­ma­ture book of busi­ness which nat­u­rally has a higher propen­sity to churn. As its in-force book be­gins to ma­ture, we ex­pect re­ten­tion rates to grad­u­ally in­crease to lev­els closer to listed peers.’

Us­ing fore­casts from Nu­mis, Hast­ings is trad­ing on 10.4 times 2019’s earn­ings. Nick John­son, an­a­lyst at Nu­mis, says the cur­rent val­u­a­tion of Hast­ings is an ‘op­por­tune entry point’ and we cer­tainly agree. (DS)


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