Hastings Group Holdings PLC

Hastings Group Holdings PLC (LON: HSTG) is a FTSE 250 listed technology-driven insurance provider. It is involved in the underwriting and broking of private car, bike, van, and home insurance in the United Kingdom.

Recent News
5 August 2020: The Company revealed that they are in talking terms over the agreement for cash offer to be made by Bidco to acquire the issued and to be issued share capital of Hastings, which is subject to the shareholders’ consent.

Half-Yearly Report (for the six months ended 30 June 2020)


(Source: Annual Report, Company Website)

As per the H1 FY20 results released on 5 August 2020, there was 5% growth in live customer policies to 2.96 million in 12 months to 30 June 2020, reflecting an increase in business competitiveness and strong retention rate. The gross written premium in H1 FY20 increased by 3% to £514.9 million (30 June 2019: £499.2 million). The calendar year loss ratio decreased from 81.1% (at 30 June 2019) to 75.6% at 30 June 2020. The continued inflation in repaid and third-party credit hire costs was offset by the lower claims’ frequencies during the H1 FY20. Driven by the policy growth and improved calendar year loss ratio, the adjusted operating profit jumped to £78.3 million in H1 FY20 (H1 FY19: £59.7 million). As of 30 June 2020, the Company had net debt of £239.4 million and strong Solvency II coverage ratio of 151%.

Share Price Performance
 
Daily Chart as on 5 August 2020, before the market closed (Source: Refinitiv, Thomson Reuters)

HSTG’s shares were trading at GBX 252.40 on 5 August 2020 (before the market close at 11.24 AM GMT+1), up by 17.40% against the last day closing price. Stock's 52 weeks High is GBX 256.20 and Low is GBX 136.50. From the technical standpoint, 14-day RSI is currently in an overbought zone.

Valuation Methodology



Key Risks

Due to Covid-19, motor claims have gone down as compared to the same period the last year. Moreover, the underlying inflation in repair costs can impact the operating costs in the short-term period. Also, the change in legal and regulatory requirements amid uncertain economic environment can cause operational and financial risk.

Conclusion – Take Profits Off the Table

The Group has delivered profitable growth in H1 FY20, and underlying business performance was strong either. However, the stock is trading nearly at 52-week high and 14-day RSI is representing an overbought situation. Hence, it raises doubts over further upside potential while short-term consolidation is expected. Moreover, the stock has already yielded over 28% and 37% growth in the past 1 month and 3 months, respectively. Therefore, it is advisable to book profit now as the Company also revealed that they are in talking terms over the agreement for cash offer to be made by Bidco, which is subject to shareholders’ approval.

Based on the risks associated and acquisition discussions as currently in pipeline, we have given a “Sell” recommendation at the current price of GBX 252.40 (as on 5 August 2020, before the market close at 11.24 AM GMT+1).
 
*All forecasted figures and Industry information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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