Beazley PLC

Beazley Plc (BEZ) is a London, the United Kingdom-based nonlife insurance company. The company’s business is differentiated in five divisions: Specialty lines, Property, Marine, Reinsurance, and Political, accident & contingency.

On 8^th November 2019, the company will announce the Q3 interim statement.

Recent News
On 9^th August 2019, the company appointed Roscoe as the head of its smart tracker special purpose syndicate 5623.

Financial Highlights (H1 FY19, US$ million)

(Source: Interim Reports, Company Website)

In H1 FY2019, gross premium surged by 12 per cent to $1,483.6 millionas compared with the corresponding period of the last year. Net premiums increased by 11 per cent to $1,225.50 million against the $1,105.3 million in H1 FY2018. The company attained a profit before tax of $166.4 million, an increase of 189 per cent from the previous year same period data. The combined ratio stood at 100 per cent against 95 per cent recorded in a year-ago period.

In H1 FY2019, basic earnings per share increased to 26.4 cents against the 9.1 cents in H1 FY18. Net assets per share stood at 295.4 cents, an increase of 14.1 cents as compared to 281.3 cents in H1 FY18.

The board has declared a first interim dividend per share of 4.1 pence, an increase of 0.2 pence against the 3.9 pence in H1 FY18, in line with the strategy of delivering in the range of 5 per cent to 10 per cent dividend growth.

Share Price Performance

Daily Chart as at August-13-19, before the market closed (Source: Thomson Reuters)

On 13th August 2019, at the time of writing (before the market close, GMT 8:41 AM), Beazley PLC shares were trading at GBX 581 and remained flat against the previous day closing price. Stock's 52 weeks High and Low is GBX 604.50/GBX 486.44. The company’s stock beta was 0.48, reflecting the lower movement of the stock as compared to the benchmark index.

Valuation Methodology

Peers: RSA Insurance Group PLC, Saga PLC, Direct Line Insurance Group PLC, Hiscox Ltd, Hastings Group Holdings PLC, Lancashire Holdings PLC, and Admiral Group PLC.

Conclusion
The company is well-positioned to continue to grow in several markets such as healthcare, cyber, and environmental liability across the years. The company is seeing solid demand from the financial sector companies for a variety of complimentary insurance covers in Europe, Asia, and Latin America.

The company’s CEO has warned that the prices for marine insurance will increase after the seizure of British-flagged tanker in the Strait of Hormuz. Over the last four years, the revenue of the company has increased at a CAGR of 5.14%.

Changing market dynamics, along with a continued programme of investment in digital capabilities augur well for the group's upcoming growth. The group is highly exposed to exogenous factors which can severely affect its performance. The potential for a rise in frequency and severity of claims due to climate change can reduce the group's performance.

In the future, the company is planning to grow the United States business. The company transact in the United States and see considerable opportunity for the upcoming growth in all the key lines of business.
Therefore, based on the long-term profitability prospects and valuation done using the above methodology, we have given a "Hold" recommendation on the stock, at the closing price of GBX 581 (as on August 12, 2019), based on the 2.33x NTM Peers Average Price-to-Book Value-based valuation  (approx.) on the FY19E book value per share (approx.).
 

Pets at Home Group PLC

Pets at Home Group Plc (PETS) is a United Kingdom-based company. The group is a retailer of pet products, pet food, and other pet related services. The company markets its products for cats, dogs, fish, birds, and other pets through pet retail stores.

On 26^th November 2019, the company will announce the interim financial results for the financial year 2020.

Q1 FY2020 Trading Update (as on 2^nd August 2019)
The company announced a trading update for the 16-weeks period from 29^th March 2019 to 18^th July 2019. The company’s revenue increased by 9.9 per cent to £303.4 millionas compared with the corresponding period of the last year, due to an increase in retail revenue of 8.7 per cent and vet group revenue of 18.8 per cent. Group like-for-like (LFL) surged by 8 per cent, driven by the growth in retail and vet group.

Financial Highlights (FY2019, £million)

(Source: Preliminary Results, Company Website)

The group’s reported revenue surged by 6.9 per cent to £961 millionas compared with the financial year 2018 of £898.9 million and LFL (like-for-like) revenue was up by 5.7 per cent, due to the increase in revenue in all the segments. Group’s underlying profit before tax rose by 6.1 per cent to £89.7 million as compared to £84.5 million in FY18 and statutory pre-tax profit (including all non-underlying items) stood at £49.6 million.

Underlying net income for the year 2019 increased to £70.4 millionfrom £67.5 million in FY18 and underlying basic earnings per share climbed from 13.5 pence in FY18 to 14.1 pence in FY19. Statutory basic earnings per share declined by 6.5 pence to 6.1 pence in 2019.
Group’s underlying free cash flow (FCF) increased to £63.6 million, representing a cash conversion rate of 49 per cent. The company’s Board has recommended a final dividend per share of 5.0 pence, giving a total dividend per share of 7.5 pence in FY2019 and remained the same against the last year data.

Share Price Performance

Daily Chart as at August-13-19, before the market closed (Source: Thomson Reuters)

On 13th August 2019, at the time of writing (before the market close, GMT 9:02 AM), Pets at Home Group Plc shares were trading at GBX 227.60 and increased by 1.52 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 236/GBX 101.95.

Valuation Methodology

*Peers: Next PLC, Card Factory PLC, Kingfisher PLC, and B&M European Value Retail SA

Conclusion
The company is confident about the year ahead, entering the fiscal year 2020 with good momentum and on a higher revenue and profit base than previously anticipated. The group said it had purchased 48 of the 55 vet practices, of which 19 have been closed down. Rising labour costs in the UK, intense competition and surge in shoplifting losses could limit the company's growth prospects. The company now expect an underlying profit for the year 2020, before IFRS16 impacts, to be slightly higher than the current market expectations. The company plans to buy out several JV (Joint Venture) vet practices, while performance in the ongoing estate remains decent. In the future, the company can face uncertainty across the broader retail sector. Moreover, the company is trading near its 52-week high, raising doubts at its upside potential at the current prices.

On the basis of risk elements as discussed above and supported by valuation done using the above method, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 224.20 (as on 12th August 2019), while we look for any upcoming catalysts.
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.
*Currency exchange rate taken for 1 USD = 0.829478 GBP.

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