RSA Insurance Group Plc

RSA Insurance Group Plc (LON: RSA) is a British-based general insurer, offering insurance to individuals and businesses ranging from small businesses to large corporations.

Board Changes
On 1^st April 2020, RSA Insurance Group announced that its Non-Executive Director and Chair of the Audit Committee at Pacific Life Re Limited, Clare Bousfield, has left her role.

Financial Highlights – Financial Year 2019 (31^st December 2019, GBP, million)
For the financial year ending 31^st December 2019, the net written premiums of £6,417 million were decreased by 1% in the period at constant FX. Underlying premiums reduced by 2% when adjusted for reinsurance changes but broadly flat excluding the exit portfolios. The personal lines businesses have premiums of 57% with a combined ratio of 88.5% for 2019. In 2019, the company delivered a strong result, with underlying earnings per share increased to 44.5 pence (ex. exits) and the total dividend was up by 10 per cent.  On 31st December 2019, the Solvency II coverage ratio of 168%, higher than the previous target. Excluding exits, the underlying return on tangible equity of 16%, in the upper part of 13-17% target range.

Share Price Performance

Daily Chart as of April16^th, 2020, after the market close (Source: Thomson Reuters)

RSA Insurance Group Plc shares closed at GBX 348.10 at the time of writing after the market close on 16^th April 2020. Stock's 52 weeks High is GBX 736.84 and Low is GBX 321.20.

Conclusion
The group focused on driving towards best-in-class capabilities and performance. In Scandinavia, the mid-single-digit rates and robust retention of 85 per cent contributed. Premium growth in most profitable lines such as Sweden up 2% and Johnson up 13%. Johnson continues to demonstrate robust growth, profitability and excellent customer retention. Personal Lines growth in Canada and Sweden, and Commercial Lines growth in Scandinavia. The company is aiming for further progress in 2020. Based on existing forward bond yields and FX rates, investment income is projected to be in the range of £255-£270 million in 2020, and existing FX rates imply a 2 per cent headwind in pounds terms on operating profits against 2019. The group anticipate Net Written Premiums to be same in 2020 as compared with 2019 at constant FX, and Net Earned Premiums marginally lower reflecting residual earn through of 2019 actions.
RSA is witnessing growth in its underwriting profit overall and from each region. The profits are increasing, return on tangible equity is very good, and the dividends are up. This growth is driven by enhanced underwriting. The change in management and growth in the UK & International division is showing good progress. The company focuses on underwriting enhancement with robust cost control which could lead the business of the Group. There are some challenges, but the company are capable enough to tackle them.

Based on the above rationale, we have given a "BUY" recommendation at the closing price of GBX 348.10 (as on 16^th April 2020).

Costain Group Plc

Costain Group Plc (LON: COST) is a construction and material company and engaged in providing consulting, project delivery and operations and maintenance services. 

Covid-19 Update
On 31^st March 2020, Costain Group released an update on the impact of covid-19 on business performance. The group is focused on ensuring the health and safety of its employees, clients, communities and supply chain partners. The company has taken required steps to preserve cash, reduce costs and capital expenditure. The group has enabled remote access for employees to work from home and for essential workers, there are strict measures to ensure social distancing as per Government guidelines. The group is in discussions with its clients, and more than 95 per cent of revenue is derived from regulated businessesor government agencies. The outbreak will impact the performance, but the group is well-positioned to take advantage of changing infrastructure needs in the UK in the long-term. The company’s board and leadership team have agreed to take reduced fees and salaries for 3 months.  The group has used the Government's job retention schemeto preserve jobs and has decided to not pay any dividend until the situation stabilises. The company has cash of GBP 40 million and debt facilities of GBP 71 million as on 26^th March 2020. The group has proposed a new capital raising underwritten by Liberum, Investecand HSBCfor GBP 100 million to be completed in short-term.

Share Price Performance

Daily Chart as of April16^th, 2020, after the market close (Source: Thomson Reuters)

Costain Group Plc shares closed at GBX 83 at the time of writing after the market close on 16^th April 2020. Stock's 52 weeks High is GBX 351.00 and Low is GBX 31.00.

Valuation Methodology


Key Risks
The implementation of complex strategic initiatives gives rise to significant execution risks, which may affect the operational capacity of the company and may adversely impact the Group if these initiatives fail to meet their objectives.

Conclusion
From long-term economic and social trends, the company is well-positioned to benefit that offer growth opportunity for many years to come.  The company has a decent track record of value creation for its stakeholders and delivering the other objectives as an independent business. The company’s business is conducted in a highly competitive environment with a developing demographic trend, and continued profitability depends upon management’s ability to respond to these pressures and trends. The Group’s business is exposed to economic and market fluctuations, which may adversely affect the Group’s business and its financial performance. Also, the group is widely exposed to the Brexit-related uncertainties and devaluation of the Sterling, which could have some material impact on the group’s performance.
Therefore, based on the above rationale, we have given a “Watch” recommendation at the closing price of GBX 83 (as on 16^th April 2020), while we look for the growth catalysts in the near-term.
 
 
*All forecasted figures and peers have been taken from Thomson Reuters.

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