Hastings Group Holdings PLC (Ticker Symbol: HSTG) is a British holding company with focus across the insurance value chain. The group, along with its subsidiaries, offers general insurance products in the United Kingdom, with the primary focus on the UK motor market, including private car insurance and motorbike and van insurance. It also provides home insurance and premium financing and ancillary products. Hasting is the fastest growing general insurance company in the UK and has more than 2.6 million active customers. The group enjoys a 7.5 per cent market share. The company specialises in the British private car insurance market, accounting for 86 per cent of the company's live customer policies (‘LCP').

Key Statistics


Financial Highlights
On February 28, 2019, the technology-driven insurance provider Hasting Plc announced its full-year final results for the period ended 31^st December 2018, company’s operating profit rose 4% to £190.6 million as compared with £184.1 million during the FY17. The Net earned premium rose by 7 per cent to £440.7 million in FY 2018, from £410.1 million in FY 2017. This reflects policy growth, gross written premiums increased to £958.3 million for the year, up 3 per cent from £930.8 million last year.

The growth in operating expenses slowed down, due to strong expense discipline despite continued investment for the future. This led to growth in adjusted operating profit which increased by 4 per cent. However, if the impact of prior year VAT refund of £14.6 million and the effect of £7.0 million from Q1 weather events are excluded, adjusted operating profit was broadly flat at £183.0 million.

The group reported free cash generation of £167.7 million, reflecting strong growth of 42 per cent over the prior year. This helped the company to achieve its net debt leverage multiple target of around 1.0x during the year.
A final dividend of 9p per share for 2018 was proposed, vs 8.5p per share in FY 2017. Together with the interim dividend, the dividend payout ratio for the year equates to 58.8 per cent of adjusted profit after tax against 55.5 per cent in FY 2017. The total divided also increased by 7 per cent over the prior year.

At Ratios Standpoint,
In FY 2018, the loss ratio increased by two percentage points as compared to the last year. This was mainly due to adverse weather conditions in the first quarter of the year and claims inflation being higher than premium inflation. The ratio is significantly more than the industry median of 65.6%.  The combined operating ratio increased to 89.4 per cent, reflecting the increase in both the loss ratio and expense ratio.

The change in premium earned experienced a significant increase to 31.4 per cent from 19.3 per cent in FY 2017; it was considerably more than the industry median.

The company’s pre-tax ROA is higher than its peers at 5.3%, though it slightly decreased in FY 2018. Similarly, the pre-tax ROE stood at 24.2% relatively higher than the industry median of 13.8%.

Share Performance
 
Daily Chart as at Mar-18-2019, before market close (Source: Thomson Reuters)

At the time of writing as on (March-18-2019, at 09:12 AM GMT), shares of Hasting Group Holding Plc were quoting at GBX 213.40, rose 1.4 points or 0.66% against its previous close. During the last one-year shares of Hasting have reached to a 52w high of GBX 292.0 and a 52w low of GBX 169.50. At the close (as on March 14, 2019) shares were ended 27.3% below its 52w high level and 25.0% above its 52w low level. On a yearly basis, shares have delivered a negative performance of 20.3% and on a year-to-date basis, shares were increased by 13.43% which indicates prices can go up further. Hasting Plc is the among highest dividend payer company among the Property and Casualty insurance arena with dividend yield stood at 6.37%.

Valuation Methodology

*All forecasted figures have been taken from Thomson Reuters.

Growth Prospects & Risks
The management foresees significant growth opportunities in both its core motor and home markets. For the tenth year in a row, the group expanded its customer base and now is an established name in the market. Moreover, customers are increasingly using primarily price comparison websites to buy insurance. Changing market dynamics along with a continued programme of investment in digital capabilities augurs well for the group's future growth. The UK's exit from the EU is not expected to materially impact the need for UK motorists and households to obtain insurance and therefore is less likely to influence the group's performance directly. However, any sustained economic downturn that may follow Brexit could increase the risk to the strategic plans and reduce the Group's income from investments.

Conclusion
Based on the above valuation done, we have given a BUY recommendation at the closing price of GBX 212 (as on March 15, 2019) with lower-double digit upside potential based on 12.5x NTM Industry Mean Price to Earnings on FY19E EPS.

*Note: The buy recommendation is also valid for the current price as covered in the report as on (18th March 2019).

Note- GBp or GBX are interchangeably used for Pence Sterling.

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