Shares in Beazley (BEZ) fell 7 per cent after the Lloyd's underwriter reported a significant fall in first-half profits. However, the headline figures don't tell the whole story because gross premiums written actually rose by 5 per cent to $1.07bn (£694m), while the group's combined ratio (of claims to premiums) improved from 91 per cent to 89 per cent.
The fall in profits reflected a collapse in the investment return on the group's fixed income portfolio, with net investment income falling from $36.1m to just $0.3m. This was caused by an unexpected rise in US interest rates in the second quarter. However, this means that the yield to maturity - on average, two years - has risen from 1 per cent to 1.8 per cent, which analysts at Numis believe adds $31m to future earnings.
The group's underwriting performance was underpinned by an overall hardening in rates, notably a 4 per cent rise in speciality lines, which account for 36 per cent of total group premiums. By contrast, the absence of any significant catastrophes saw reinsurance premiums - some 16 per cent of total premiums - trimmed by 1 per cent. However, unlike some of its competitors who are writing underpriced business in the face of growing competition, Beazley's management team stressed that underwriting discipline will be maintained.
Broker Numis Securities expects full-year EPS of 22.7p and year-end net tangible assets (NTA) of 147.3p per share (from 26.7p and 124.3p in 2012).
| BEAZLEY (BEZ) | ||||
|---|---|---|---|---|
| ORD PRICE: | 225p | MARKET VALUE: | £1.17bn | |
| TOUCH: | 225-226p | 12-MONTH HIGH: | 245p | LOW: 147p |
| DIVIDEND YIELD: | 3.8% | PE RATIO: | 10 | |
| NET ASSET VALUE: | 152p | COMBINED RATIO: | 89% | |
| Half-year to 30 Jun | Net premiums ($bn) | Pre-tax profit ($m) | Investment income ($m) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 651 | 113 | 36.1 | 2.7 |
| 2013 | 758 | 82 | 0.3 | 2.9 |
| % change | +16 | -27 | -99 | +7 |
Ex-div: 31 Jul Payment: 30 Aug £1=$1.537 Capacity owned 82% | ||||
