Hastings Group Holdings PLC (HSTG) is the United Kingdom domiciled data and digitally focused general insurance provider with a focus across the insurance value chain, serving the home, bike, van and car insurance market. It also provides home insurance, premium financing and ancillary products. The group's brands include Hastings Direct, which is the company's largest and best-known brand, Hastings Premier, Hastings Essential, and many more. The company currently provides general insurance to more than 2.7 million customers in the United Kingdom and has an employee base of 3,400 professionals working in London, Gibraltar, Leicester and Bexhill. The company’s brand, like People’s Choice, offers insurance services at a competitive price. The company's share is a constituent of the FTSE 250 index.

The current Chair is Gary Hoffman and was appointed on May 2018. Toby van der Meer holds the responsibilities of the Chief Executive Officer. He was appointed on March 1st, 2018. John Worth is the current Chief Financial Officer.

Key Statistics



Top Shareholders

 

Trading Update 9M FY2019

On 25th October 2019, Hastings Group Holdings announced its trading update for the nine months period ending 30th September 2019. Supported by strong retention rates, the company’s LCP (Live customer policies) were up by 5 per cent to 2.84 million as on 30th September 2019. The Gross written premiums surged by 2 per cent to GBP 753.1 million for the nine months period ending 30th September 2019. The change in the risk mix, aiming to reduce risk segments & a reduction in younger drivers offset the increase in premium prices. The company prioritise its pricing discipline in the Q3 period. The company’s applying rates stood in line with the first half claims inflation and were ahead of the market. The environment in which the company operates remained challenging for the period, with market premiums lagging the claims inflation. The company’s claims inflation stood in between 7 per cent to 8 per cent for the third quarter of FY2019. The company’s loss ratio for the calendar year stood at 79.1 per cent (before Ogden rate change impact) for the nine months period in the financial year 2019. Due to the lower reinsurance commissions and lower earned premiums for the period, the company’s net revenue declined by 2 per cent to GBP 563.8 million for the 9M financial year 2019. With the insertion of the company’s in-house Home underwriting and with support from third-party panel members, the company’s Growth in Home stood to 200,000 LCP. The company, with its focus on price comparison distribution, technology and the responsive business model remained well-positioned to react to the changes made by the FCA related to the general insurance pricing practices. The company had successfully able to change its new repair service providers with superior customer experience. The company continued to apply technology and digital strategy into its businesses, which resulted in a reduction in customer service calls/ LCP by 15 per cent and nearly 60 per cent of total loss claims were settled using digital means. The company’s Investment spending in the remaining FY2019 and FY2020 was in line with the strategic initiatives and digital proposition set by the company previously. With a continued promise to diversity, the company had a 10 per cent increase in the senior female leaders in the FY2019. The company targets to achieve 30 per cent club female leadership by the end of FY2020 and is on track to achieve this target.

Key Performance Indicators
 

Adjusted Operating Profit

Adjusted operating profit is the primary measure used to evaluate operating performance and indicates the results of underlying trading. The company’s Adjusted operating profit surged by 4 per cent to £190.6 million in the FY2018 versus £184.1 million in the FY2017.


Profit After Tax

PAT (Profit after tax) is used to measure the performance of the company after the inclusion of interest expense and accounting effects for business combinations. The company’s Profit after tax was up by 3 per cent to £130.6 million mainly because of an increase in the average premium and historical VAT refund.


Calendar year loss ratio

Calendar year loss ratio is used to measure the underwriting performance of the company. The company had been able to achieve the ratio at the lower end of the targeted range despite the adverse weather conditions, which shows the company’s focus on claims management and underwriting discipline.

‘
Combined operating ratio

Combined operating ratio is used to measure the overall underwriting performance of the company, including the calendar year expense ratio and the loss ratio. The company’s Combined operating ratio stood at 89.4 per cent in FY2018, which shows operating and underwriting efficiency and discipline. 


Live customer policies (LCP)

Live customer policies are used to measure the total number of policies presently in force and are the main performance indicator for the Hastings Group Holdings. The company was able to achieve a 2.5 per cent growth in policies to 2.71 million customers.

Financial Ratios 

 
(Source: Thomson Reuters)

The reported Loss Ratio in H1 FY2019 surged by 7.3 per cent to 81.1 per cent against 73.8 per cent reported last year for the same period. The reported Combined Ratio in H1 FY2019 was up by 9.2 per cent to 96.9 per cent from 87.7 per cent reported last year for the same period. The reported Investment Ratio of 1.9 per cent for the H1 FY2019 stood lower than the industry median of 14.1 per cent and is lower than 1.7 per cent for H1 FY2018. The reported Reserves Change in H1 FY2019 was up by 1.5 per cent to 9.1 per cent from 7.6 per cent reported last year for the same period. Pre-tax Return on Assets for the H1 Financial year 2019 stood at 1.5 per cent, which was higher than the industry median of 0.8 per cent. Pre-tax return on equity for the H1 Financial year 2019 stood at 7.2 per cent, which was slightly higher than the industry median of 7.1 per cent. On leverage front, the debt-equity ratio of the Hastings Group Holdings Plc’s was 0.38x, which was same as compared to the industry median and slightly declined when compared with the same period of the last year.
 
Share Price Performance
 

Daily Chart as at November-18-19, before the market close (Source: Thomson Reuters)

On November 18, 2019, at the time of writing (before the market close, at 11:31 AM GMT), Hastings Group Holdings Plc shares were trading at GBX 173.10, up by 1.05 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 235.45/GBX 169.50. At the time of writing, the share was trading 26.48 per cent lower than the 52w High and 2.12 per cent higher than the 52w low. Stock’s average traded volume for 5 days was 486,529.40; 30 days – 419,854.93 and 90 days – 534,649.77. The average traded volume for 5 days was up by 15.88 per cent as compared to 30 days average traded volume. The company’s stock beta was 1.58, reflecting high volatility as equated to the benchmark index. The outstanding market capitalisation was around £1.13 billion, with a dividend yield of 7.88 per cent.

Valuation Methodology
Method 1: Price to Cash Flow based approach (NTM)



To compare Hastings Group HoldingsPlc withits peers, Price/Cash Flow multiple has been used. The peers are Chubb Ltd(NTM Price/Cash Flow was 24.10), Lancashire Holdings Ltd(NTM Price/Cash Flow was 13.71), Curtis Banks Group Plc(NTM Price/Cash Flow was 9.80), Phoenix Group Holdings Plc(NTM Price/Cash Flow was 9.42) and Chesnara Plc(NTM Price/Cash Flow was 8.94). The Average of Price/Cash Flow (NTM) of the company’s peers was 13.19x (approx.)

Method 2: Price to Earnings Approach (NTM)



To compare Hastings Group HoldingsPlcwithits peers, Price/Earnings multiple has been used. The peers are Sabre Insurance Group Plc(NTM Price/Earnings was 15.94), Curtis Banks Group Plc(NTM Price/Earnings was 14.12), Sampo Plc(NTM Price/Earnings was 13.74), RSA Insurance Group Plc(NTM Price/Earnings was 11.59) and FBD Holdings Plc(NTM Price/Earnings was 11.53). The average of Price/Earnings (NTM) of the company’s peers was 13.38x (approx.)

Growth and Risk Assessments

Investment in future business helps in achieving further sales growth and operational efficiencies. The group pursue a well-balanced approach to evolve in the regulatory and macroeconomic environment. To meet the new regulations, the group needs to implement new processes, failing to do so would increase the compliance risk. Acquisitions to match rapid transformation may increase integration risks and expected synergies may not be achieved.

Conclusion

Despite a considerable decline in the financials during the period, the company reaffirmed its outlook and guidance for the full year 2019, as it enjoys competitive advantages in the large motor and home markets. The market share of the company in UK private car insurance market increased to 7.8%, from 7.5% at 31 December 2018, and without chasing volume growth at the expense of profitability, it continues to work towards its target of 3 million customers. The company is relatively immune from the volatility arising from Brexit uncertainties and is in an excellent position to profit from the customers’ push towards online sources, especially primarily price comparison websites, to buy insurance.

Over the course of 4 years (FY14 - FY18), the company’s revenue surged from £380.80 million in FY14 to £757.7 million in FY18. Compounded annual growth rate (CAGR) stood at 18.77 per cent.
 
Based on the decent growth prospects and support from the valuation as done using the above two methods, we have given a “BUY” recommendation at the current price of GBX 170.40 (as on 18th November 2019, before the market close at 8:15 AM GMT) with single-digit upside potential based on 13.19x NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.) and 13.38x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.