Jardine Lloyd Thompson downgraded to hold

A third-quarter trading update earlier this month from insurance broker Jardine Lloyd Thompson (JLT) - while solid enough overall - also revealed that the company is facing a number of headwinds. So, after a decent share price performance in recent months, caution now looks wise.

To begin with, management pointed to "the continued weak insurance rating environment and challenging economic conditions". While at its reinsurance unit, JLT Re, the group has seen reduced purchasing activity at some of the large primary insurers. Trading profit at this division will now be lower in 2012 than in 2011. In Europe, markets were described as "challenging" - in the UK, for instance, pressure on consumers and small businesses has continued to hit trading at the group's Thistle Insurance Services unit.

Still, JLT has continued to make progress. The risk and insurance division's performance, for example, was described as "encouraging" - with strong revenue generation in the emerging markets of Latin America and Asia. During the period - from 1 July to 17 October - Jardine Lloyd Thompson said it had delivered "good" levels of organic revenue growth and an overall trading performance that was in line with expectations.

Numis Securities says...

Hold. Jardine Lloyd Thompson has reiterated its familiar message of being able to deliver financial progress despite tough economic conditions. In our view the company is a top-quality medium-term growth story with significant profit upside from both market share growth and expansion into new areas. Asia and Latin America remain key drivers of the company's current growth. But having gained significantly so far this year, we think the shares are now looking fairly valued. Expect full-year pre-tax profit of £160m, with EPS of 48.6p.

Investec Securities says...

Hold. The group is facing a further margin squeeze as low levels of economic activity and higher client demands impact. Management is investing in order to maintain momentum, but this mainly involves employing more people - 500 new employees in 2012, many of whom may take over two years to contribute fully to new revenue generation. The business is therefore exposed to considerable risk. Trading on about 13 times 2013's forecast earnings (of 56.7p), the shares look fully valued. Expect full-year pre-tax profit of £156m and EPS of 50.3p.