Beazley PLC – Delivered strong premium growth in a challenging year.

Beazley PLC (LON: BEZ) is a FTSE 250 listed specialist insurance Company. It has operations in Europe, Asia, Latin America, and North America.  

Rationale for Valuation – Hold at GBX 346.60

• BEZ achieved strong investment income in FY20 and remained optimistic about the year ahead.
• The Company recorded a debt-equity ratio below 0.35x over the past five years, which remained lower against the industry median.
• From a technical standpoint, 100-day SMA (346.84), is supporting the upside movement.
• The Company attained a premium growth of 19% in FY20 despite a challenging claims environment driven by COVID-19 losses.

Key Risks

• Any uncertainty in the financial transactions and losses above the charged premiums could lead to financial and insurance risk.
• The nosedived interest rates and volatility in equity markets causing a risk to the financial position of the Company.
• The Company’s performance is also subject to certain risks such as volatility and fluctuations arising from the prevailing COVID-19 mayhem, Brexit and US-China tension can significantly impact the market prices of assets, liabilities, equity, and credit markets.

Recent News

22 January 2021: Sir Andrew Likierman decided to step down as Chair of the Beazley PLC Remuneration committee at the conclusion of the Company's AGM on 26 March 2021.

Financial Highlights for year-end 31 December 2020 (5 February 2021)

(Source: Company Website)

• During FY20, BEZ reported a loss before tax of US$50.4 million (FY19: Profit US$267.7 million), while the return on equity was -3% against 15% in FY19.
• The gross written premium increased by 19% to US$3,563.8 million, supported by rate rises across most of the divisions.
• The net investment income stood at US$188.1 million (FY19: US$263.7 million).
• The combined ratio stood at 109%, which was heavily impacted by the Covid-19 related claims.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Book Value Approach (NTM) (Illustrative)

Conclusion

During FY20, the Company witnessed strong, double-digit premium growth across the business, driven primarily by rate increase across all divisions. Moreover, the favourable pricing conditions underpin its ability to capitalise on market conditions. In FY21, the Group expects to deliver mid-teen growth and substantial shareholder return. Furthermore, it is maintaining a balanced portfolio and growing market share to grow the business further. The stock made a 52-week low and high of GBX 287.60 and GBX 550.50, respectively.

Based on the decent growth prospects, strong renewal business and support from the valuation as done using the above method, we have given a “Hold” stance on Beazley at the current market price of GBX 346.60 (as on 2 March 2021, before the market close at 8.00 AM GMT), while we look forward to reviewing the upcoming catalysts.

Secure Trust Bank PLC – Strong rebound in demand of lending products were seen with initial lockdown easing.

Founded in 1952, Secure Trust Bank PLC (LON: STB) is the United Kingdom-based retail bank, providing saving account and lending services with over 950 employees.

Investment Rationale – Hold at GBX 946.00

• STB’s Board is encouraged by current trading as new business volumes continued to increase.
• From a technical standpoint, 100-day SMA (852.54) is supporting the upside potential.
• Over the past four years (H1 FY16 to H1 FY20), the net interest income has surged at a CAGR of ~6.44%.
• Over the past four years, net interest margin has remained above 6.40%, whereas the industry median is merely 1.82%.
• STB has benefitted from the low-rate environment as it replaced maturing higher margin term deposits with materially lower cost deposits.
• It has continued to pursue strategic objectives and remained confident in the significant market opportunities.

Risk Assessments

• The potential uncertainties pertinent to Covid-19 on the UK economy continued to persist.
• The risk related to unfavourable interest rate movements, borrower’s quality, adverse market conditions, and regulatory developments.

Recent News

25 February 2021: STB announced the appointment of Baroness Neville-Rolfe DBE CMG as a member of the Remuneration Committee, which came in effect from 1 March 2021.

Pre-Close Trading Update for year ended 31 December 2020 (as on 21 January 2021)

• STB witnessed a solid rebound in demand for the lending products as restrictions lifted in the Q4 FY20. However, the new restrictions impacted the demand for consumer business in 2021.
• The statutory profit before tax (PBT) for FY20 is expected to be significantly ahead of the upper end of consensus. The consensus for statutory PBT was in the range of £5.6 million to £9.7 million.
• The loan book remained resilient and performing in line with management expectations.
• Liquidity and Capital position remained robust with profitable trading.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Book Approach (NTM) (Illustrative)

Conclusion

Secure Trust Bank has recently appointed David McCreadie as Chief Executive Officer (with effect from 5 January 2021), which has strengthened the leadership of the Company. Moreover, the Company is encouraged by the current trading as loan book remained resilient and new business continued to increase. STB’s focus in the short-term would be to maximise the financial performance and preserving capital position. Notwithstanding, the Company is unable to resume market guidance due to the continuing uncertainty. In the long-term, it is focused on targeting organic growth across a diverse portfolio, pursuing M&A activity, and optimising its capital and liquidity strategies to deliver profit growth in the medium term. Moreover, the changing competitive landscape and the material fall in funding costs shall create favourable conditions for growth. Stock 52-week High and Low were GBX 1,400.00 and GBX 524.93, respectively.

Based on the strong demand recovery amid an uncertain outlook, we have given a “Hold” recommendation on Secure Trust Bank PLC at the current market price of GBX 946.00 (as on 2 March 2021 before the market close at 8.00 AM GMT), while we look forward to reviewing the upcoming catalyst.

*All forecasted figures and Peer/Industry Information have been taken from Refinitiv, Thomson Reuters.

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