Return to growth

Hiscox’s pre-tax profits for 2015 of £216m were only 6% lower than those for 2014, quite impressive in a soft market. While some of this can be attributed to good fortune in terms of the relatively low level of natural catastrophes (Hiscox Re achieved a profit margin > 50% for the second year running), more is due to good underwriting and another excellent performance from its retail division which now accounts for over half gross its premium income.

Randall & Quilter’s sale of Synergy Insurance Services to Plum Underwriting continues its partial retreat from an over-optimistic expansion from its core skillset in run-off into live underwriting. It is mildly encouraging that they could sell it at a premium to Synergy’s book value.

H&T’s core pawnbroking business produced its habitual solid performance, but with signs of an improvement in the quality (already above-average) of its lending book, while its two smallest divisions showed significant growth. The cessation of the investment programme to expand the estate has resulted in much of the cash generated by the core business being available to pay down debt – reduced to £1.2m by the year-end – and pay a substantial dividend. At its last closing price H&T shares have an attractive yield over 4%.

The preliminary results announced on 29th of February by WH Ireland (“WHI”), for the year to 30 November 2015, showed strong growth of 40% in headline earnings per share, resulting from useful, but more modest, increases in both absolute numbers and market share for AUM and corporate clients, allied to effective cost control. In our note last week we updated our “sum of the parts valuation” for WHI: valuing it at 4% for discretionary AUM, 2% for advisory and 0.5% for execution-only, plus surplus cash and the equity in the Manchester Office property, comes to £57m or 223p/share, even without attributing any value to the corporate broking division. A pessimistic valuation, using 3% and 1.5% in a non-take-over situation and applying a 10% conglomerate discount, still gives 158p.