Join our community of smart investors

Randall & Quilter: an insurer with momentum?

Despite a hit from investment losses in the first half, the Aim-listed group's two divisions continue to grow
October 14, 2020

 

  • Run-off insurance specialist has remained highly active this year
  • Half-year distribution maintained at 3.8p
IC TIP: Buy at 163.5p

Pandemic aside, Kenneth Randall is bowing out from Randall & Quilter (RQIH) with the Aim-listed business in decent shape. Although Covid-19 hit investment returns and slowed integrations in the first half, the co-founder and outgoing executive chairman can point to rising contracted annual premium income and surging commissions. Both are signs of that rare commodity in insurance: momentum.

Powered by May’s $100m (£78m) fundraising, nine legacy books were acquired in the six months to June, thereby boosting net reserves by £267m. That’s 81 per cent higher than the run-off policies acquired in the first half of 2019, and equates to a 23.3 per cent “operating” return on tangible equity on an annualised basis.

This in part explains why the group could claim pre-tax operating profit rose 30 per cent to £10.4m. The statutory figure in the table below also reflects losses on investments, some of which have since reversed.

Sector dynamics are also swinging RQIH’s way. In recent years, loose underwriting standards sparked by low interest rates, more insured natural catastrophe events, and now a health crisis have led to significant losses at many insurers.

This has led to a “hardening” environment in which policy rates rise, to the benefit of the group’s premium and commission revenue. A secondary boon, management says, is higher demand for its legacy and programme management services as larger insurers look to pro-actively manage their capital and spin-off run-off books.

FactSet-compiled consensus earnings forecasts are for 14.3p per share this year, and 16.7p in 2021.

Strong solvency ratios, an open door to new business, and a now-profitable programme management arm: not only does the yield look well-defended, but growth looks likely. Buy.

Last IC view: Hold, 156p, 29 Jul 2020

RANDALL & QUILTER (RQIH)  
ORD PRICE:163.5pMARKET VALUE:£367m
TOUCH:160-167p12-MONTH HIGH:201pLOW: 105p
DIVIDEND YIELD:6.1%PE RATIO:63
NET ASSET VALUE:176pNET CASH: £149m
Half-year to 30 JunGross premiums written (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201922633.119.23.8
20205120.580.403.8
% change+127-98-98-