Beazley is poised to be a top pick – with its potential to boost profits at time of inflation fears

The London-listed underwriter – which deals with cases from cyber crime to catastrophes – is beating analysts’ forecasts

At a time of sticky inflation, investors will always be on the lookout for companies that have the sort of pricing power that helps them to defend, or even boost, profits – and non-life insurer Beazley’s firstquarter update shows an average increase in premium rates on renewals of some 10pc. That helps to reaffirm a key part of the investment case for the FTSE 100 member and although we already have a 30pc-plus paper profit (and some dividends in the bag) following our initial analysis there could be more to come.

Beazley manages seven Lloyd’s of London syndicates that specialise in areas such as cyber crime and executive risk, marine, political risk, catastrophe and property. Heavy losses for less disciplined, and less skilful, underwriters mean capacity has come out of the market, to strengthen the hand of those who remain. Beazley even raised more than $400m (£320m) in fresh cash from investors late in 2022 so it could rake in additional premiums for business covering property and cyber security in particular, to take advantage of the firm pricing environment.

This plan is already bearing fruit. Gross premiums written rose by 12pc year on year in the first quarter to $1.4bn, boosted by price increases and strong demand in the areas of property and cyber crime. The latter did well despite ongoing debate over war exclusions for cyber crime, where interpretation of what is meant by “war” is a hot issue when it comes to whether cover can be offered or not.

The first quarter out-turn beat analysts’ forecasts and underpins expectations of a 15pc increase in gross premiums written to $6.1bn for the full year. This is in line with management’s guidance for a “mid-teens” growth rate.

A second positive factor is the improved investment return on Beazley’s $9.1bn portfolio. In 2022, the rate of return was minus 2pc for a $180m loss, as unrealised, mark-to-market losses on government bonds more than offset the benefit of higher yields, thanks in turn to rising interest rates.

In 2023 to date, Beazley has eked out a $104m gain, for an investment return of plus 1.2pc, compared to a $92m loss and a return of minus 1.2pc in the first three months of 2022.

Finally, management seems confident in the quality of its underwritten policies. Catastrophe claims are coming in no worse than expected, so exposure for 2022’s Hurricane Ian, for example, is still seen as costing no more than $120m, net of reinsurance. Adrian Cox, the chief executive, is leaving guidance for combined ratio for 2023 unchanged, with the result expected to reach the “high 80s” per cent. These three factors – strong premium growth, improved investment return and disciplined underwriting – means the analysts’

‘With the dismissal of the lawsuit over Zantac, the biopharma giant still feels like it has plenty of potential to surprise on the upside’

consensus has pre-tax profit soaring to nearly $900m in 2023, against $191m last year (when Russia, Hurricane Ian and mark-to-market – paper – losses on bond holdings cut profits by $350m) and then hitting the $1bn mark in 2024.

Events could yet take a hand but the stock trades on barely seven times forecast earnings and comes with a yield of about 2.4pc, based on analysts’ forecasts, while Beazley’s long-term record of increased gross premiums and dividends belies the year-to-year volatility of its target markets.

Questor says: buy

Ticker: BEZ

Share price at close: 611p

Update: GSK

The dismissal of a class-action lawsuit claiming Zantac causes cancer and the quick-fire sale of £840m worth of shares in Haleon are both incremental positives for GSK – and after that flurry of news last week the biopharma giant still feels like it has plenty of potential to surprise on the upside. The legal fight surrounding Zantac is far from over, but after Florida last December, Canada represents another positive step for GSK, especially as the judge readily dismissed the plaintiff ’s case, thanks in part to an extensive peer-reviewed scientific study.

Attention will now switch to the next major US hearing, which is due to take place in California in July.

The more cases that are dismissed, the more investors can get back to focusing on GSK’S drug pipeline and growth potential. The FTSE 100 firm is targeting compound adjusted operating profit growth of more than 10pc per year, as profit margins expand, and if it can achieve that then the shares could look decent value on barely 12 times forward earnings with a yield of just under 4pc, based on analysts’ consensus forecasts.

Questor says: buy

Ticker: GSK

Share price at close: £14.66