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Chaucer has minimal exposure to the sub-prime debacle, but it did run into a storm of losses on its marine and property books. On the marine side, this included two big pipeline construction claims and, given the high level of activity in energy exploration and production triggered by the high oil price, this is likely to continue. And storm-related claims have been rising round the world, even though the hurricane season has been benign again so far this year. So the combined ratio (of claims to premiums) deteriorated to a barely profitable 97 per cent.
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Meanwhile, the sharp fall in stock markets - and Chaucer's above average exposure to equities - hit the investment return hard, and the group managed just a 0.2 per cent return. Still, with Chaucer anticipating at least 10 per cent dividend growth until 2010, management seem sanguine about prospects going forward now that the UK motor sector cycle appears to have bottomed. But most other premium rates are likely to continue softening, so Numis Securities is sticking with its forecast for full-year pre-tax profit of £30.2m, and EPS of 6.4p.
CHAUCER HOLDINGS (CHU) |
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|---|---|---|---|---|
| ORD PRICE: | 71p | MARKET VALUE: | £246m | |
| TOUCH: | 70-71p | 12-MONTH HIGH: | 117p | LOW: 71p |
| DIVIDEND YIELD: | 7.5% | PE RATIO: | 6 | |
| NET ASSET VALUE: | 75p | COMBINED RATIO: | 97% | |
| Half-year to 30 Jun |
Net premiums (£m) | Pre-tax profit (£m) | Investment return (£m) | Dividend per share (p) |
|---|---|---|---|---|
| 2007 | 272 | 47.9 | 29.2 | 1.50 |
| 2008 | 236 | 3.90 | 1.50 | 1.80 |
| % change | -13 | -92 | -95 | +20 |
Ex-div: 10 Sep Payment: 1 Oct Capacity owned: 83 per cent |
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Chaucer's shares appear cheaply rated - trading a shade below Numis' 77p full-year net tangible assets forecast. But that's in line with some other Lloyd's players that look more profitable at the underwriting level. Fairly priced.
Last IC view: Good value, 96p, 11 Mar 2008
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
