Hiscox Ltd

Hiscox Ltd (LON: HSX) is an international insurance group. The company is known for its strong brand recognition. The company’s business has been divided into four reportable segments, namely Hiscox London Market, Hiscox Re, Hiscox Retail and Corporate Centre.

On 11^th May 2020, the company will release its Q1 FY20 trading statement.

Market Update Regarding Business Interruption Exposure (as on 15^th April 2020)
Hiscox UK provides business interruption exposure, which covers to SMEs as part of its small commercial package policies. For business interruption, Hiscox UK's have around 10 per cent of small commercial package customers purchase cover. The company expects that it has been directly impacted by mandated government lockdown to stop the spread of COVID-19. The group believes that Covid-19 had negligible exposure in its US retail business, and its business interruption exposure to Coronavirus is limited in Europe. Considering a realistic disaster scenario, the company estimates a $175 million of net loss for losses emanating, driven by entertainment and travel in an international pandemic scenario as well as event cancellation. The company’s claims are well-positioned and were in line with its anticipations.

Update (as on 8^th April 2020)
The management of the company has decided that it will not recommend an interim dividend payment for the financial year 2020 or conduct any share buyback. However, the group has approved the final dividend of 29.6 cents per share, scheduled to be paid on 10^th June 2020.

The company’s liquidity, funding, and capital positions stay decent. For the first two months of the year, the trading performance across the Group was ahead of anticipations.However, in view of the unprecedented crisis created by COVID-19, the company is not giving any guidance for 2020, and it is also withdrawing all financial guidance for 2020 until there is more clarity. For the Retail business, the company stay confident in the ability to return to the normally combined ratio of 90%-95% target range in 2022.

Financial Highlights for the year ended 31 December 2019
2019 was a challenging year; however, the gross premium written increased by 8.1% at a constant currency basis to $4,030.7 million as compared with the previous year (2018: $3,778.3 million). The earnings per share for the financial year 2019 was 17.2 cents. The company had a decent investment return of $223.0 million. Full-year dividend per share surged by 3.5% to 29.6 cents, which reflected on the total ordinary dividend per share of 43.4 cents. The return on equity for 2019 decreased to 2.2% as compared with the previous year (2018: 5.3%).

Share Price Performance
 
Daily Chart as of April 21st, 2020, after the market closed (Source: Thomson Reuters)

On April 21, 2020, Hiscox Ltd.’s shares closed at GBX 797.40, up by 0.83% against the previous day closing price. Stock's 52 weeks High is GBX 1,795.00, and 52 weeks Low is GBX 654.00.

Valuation Methodology

*Peers: RSA Insurance Group PLC, Direct Line Insurance Group PLC, Lancashire Holdings Ltd, and Beazley PLC.

*Currency exchange rate taken for 1 USD = 0.806181 GBP.

Key Risks
Changing market dynamics, along with a continued programme of investment in digital capabilities augur well for the group's future growth. The impact of Brexit on the UK economy could impact the company’s operations. Apart from this, there are certain other risk that could impact the financial performance of the company - Natural catastrophe risk, non-natural catastrophe risk, reserve risk, single risk losses, market risk, operational risk, credit risk, liquidity risk, and climate change risk.

Conclusion
During the financial year 2019, the company has witnessed a decent progress in all the segments. As the group had a decent period for claims, though the market is experiencing substantial disaster losses from storms in the Caribbean, the United States, and Japan.Looking forward, the macroeconomic environment stays uncertain, exacerbated by COVID-19 virus. Considering the ongoing disruption, the group has taken several actions, like withdrawing all financial guidance for 2020 and will not propose an interim dividend payment for 2020.

Based on the above rationale, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 797.40 (as on 21^st April 2020), while we look for any upcoming catalysts.
 

Triple Point Social Housing REIT Plc

Triple Point Social Housing REIT Plc (LON: SOHO) is a UK based real estate investment trust engaged in the business of acquiring and holding investment properties directly or through SPVs (special purpose vehicles) with focus on creating Social Housing assets portfolio. The group’s properties include Brunswick House, Pioneer House, Cornmill House, Claridge Court and Fountain Court.


Annual General Meeting Update
On 20^th April 2020,Triple Point Social Housing REIT released an update on the changes for its AGM. The group is closely monitoring the impact of covid-19 on its business performance.

Financial Highlights – Financial Year 2019 (31st December 2019, GBP, thousand)

(Source: Annual Report, Company Website)

For the financial year ending 31st December 2019, driven by an increase in the rental income for the period, the group’s total income increased to GBP 21,112 thousand versus GBP 11,490 thousand in the FY2018. The operating profit stood at GBP 26,936 thousand in the financial year 2019 versus an operating profit of GBP 21,504 thousand in the financial year 2018. The group’s PBT and PAT (profit before tax and profit after tax) stood at GBP 23,717 thousand in the financial year 2019 versus a PBT and PAT of GBP 19,897 thousand in the financial year 2018. The IFRS basic and diluted earnings per share stood at 6.75 pence in FY2019 versus 8.37 pence in FY2018. The EPRA basic and diluted earnings per share stood at 3.39 pence in FY2019 versus 2.27 pence in FY2018.

Share Price Performance
 
Daily Chart as of April21^st, 2020, after the market close (Source: Thomson Reuters)

Triple Point Social Housing REIT Plc shares closed at GBX 92 at the time of writing after the market close on 21st April 2020. Stock's 52 weeks High is GBX 103.50 and Low is GBX 64.20.

Valuation Methodology


Conclusion
The company has shown an increase in financial performance in the financial year 2019. Both the top-line and the bottom-line performance has improved for the period. The group need to manage its operating expenses more effectively as it can result in a decline in the profitability in the near future. In the financial year 2020, the group remained focused on due diligence, and quality of the property and the group might face issue in meeting growing regulatory requests. With the outbreak of Covid-19, many countries have imposed restrictions on travel and resulted in a sharp fall in the stock markets globally. The group might face a delay in rental revenue as a result of lockdown. Moreover, the company’s stock is trading on the higher side, raising doubts at its upside potential at the current price level.

Therefore, based on the above rationale and uncertainties in near-term due to Covid-19 pandemic, we have given a “Watch” recommendation at the closing price of GBX 92 (as on 21^st April 2020), while we look for any upcoming catalysts in the near term.
 
 
*All forecasted figures and peers have been taken from Thomson Reuters (TR). 

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