Hastings Group Holdings Plc

Hastings Group Holdings PLC (HSTG) is a United Kingdom-headquartered 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.

Financial Highlights - H1 Financial Year 2019 (30^th June 2019, £, million)

(Source: Interim Report, Company Website)
 
In the first half of the financial year 2019, live customer policies grew by 4 per cent to 2.81 million from 2.71 million at 31 December 2018, as the group reported another period of policy growth in the current market environment, while gross written premiums increased by 3 per cent. Due to the increased cost of reinsurance and lower earn through than the prior-year written premiums, net revenue declined to £370.3 million in H1 FY2019 (30 June 2018: £376.3 million). Driven by strategic investments, increased underwriting levies and increase in the calendar year loss ratio, adjusted operating profit before specific items decreased by 25 per cent on a like for like basis to £68.1 million from £90.5 million in H1 FY2018 and adjusted operating profit decreased by 43 per cent to £59.7 million. Profit after tax declined by 48 per cent to £38.2 million during the period (30 June 2018: £72.9 million). Due to market-wide claims inflation and lower earned premiums, calendar year loss ratio excluding the impact of change in Ogden rate was 79.1 per cent, while including the impact of the Ogden rate change, calendar year loss ratio was 81.1 per cent, against 73.8 per cent in the prior year.
 
Share Price Performance
 
Daily Chart as at October-22-19, before the market closed (Source: Thomson Reuters)

On 22nd October 2019, Hastings Group Holdings Plc shares were trading at GBX 191.1 at the time of writing before the market close (at 10:56 AM GMT), down by 1.03% against the previous day closing price. Stock's 52 weeks High and Low are GBX 235.45/GBX 169.50.

Valuation Methodology

*Peers: RSA Insurance Group Plc, Beazley Plc, Lancashire Holdings Ltd and Admiral Group Plc.

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. Compound annual growth rate (CAGR) stood at 18.77 per cent.

Based on the above rationale and supported by valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 191.10 (as on 22 October 2019, before the market close) with single-digit upside potential based 14.26x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 

River and Mercantile Group Plc

River and Mercantile Group PLC (RIV) is a London, the United Kingdom-based asset management and advisory services, focussing on consulting and advisory to fiduciary and fund management. Business operations are spread across: Fiduciary Management Division, Derivative Solutions Division, Equity Solutions Division and Advisory Division.
Financial Highlights – Financial Year 2019 (30^th June 2019) (GBP)

(Source: Annual Report, Company Website)
 
For the financial year ending 30^th June 2019, driven by increased net management fee and performance fees, the company’s revenue increased to £78,103 thousand as against £74,773 thousand in FY2018. The company’s statutory Profit before financial expenses and tax was at £16,450 thousand in FY2019versus £18,442 thousand in FY2018. Adjusted profit after tax stood at £14.7 million in FY2019, as compared to £16.1 million in FY2018. Statutory profit before tax declined from £18,452 thousand in FY2018to £16,788 thousand in FY2019. Statutory net profit after tax declined from £15,142 thousand FY2018 to £12,995 thousand in FY2019. Adjusted basic earnings per share stood at 20.26 pence in FY2019 against the 21.85 pence in FY2018. The Statutory Basic earnings per share stood at 16.22 pence in FY2019 against the 18.83 pence in FY2018. 

Share Price Performance

Daily Chart as at October-22-19, before the market closed (Source: Thomson Reuters)

On 22nd October 2019, River and Mercantile Group Plc shares were trading at GBX 249.50 at the time of writing before the market close (at 12:39 PM GMT) and remained same against the previous day closing price. Stock's 52 weeks High and Low are GBX 297.25/GBX 210.33.

Conclusion
The company’s top-line performance has improved in the financial year 2019. The bottom-line performance and profitability have declined for the period. River and Mercantile Group Plc’s operations are backed by efficient management, and huge market opportunity will help the group to scale up their footprints and acquire more customers. It has been very encouraging to see the contribution to growth from both investment performance and net rebalancing. The company haswitnessed growth in demand for derivatives solutions offered by the company.

Based on the above rationale, we have given a "HOLD" recommendation at the current price of GBX 249.50 (as on 22nd October 2019, before the market close).

 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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