No company is going to enjoy being told by its regulator to go back to shareholders and clarify a statement that it’s already formally made to the stock market — less still if there is some question that, albeit inadvertently, it has been selectively briefing to the possible detriment of some of its investors and if the backdrop is a sharp fall in its share price.
That is exactly what befell Hiscox last week, after the FTSE 100 insurer had to qualify and explain remarks that it had made to analysts in a meeting to discuss its recently issued trading update covering the first nine months of the year.
In this particular case, the worries were about the nuances in Hiscox’s use of the phrase “medium term” to describe the likely improvement in the performance of its retail division, the biggest, most profitable and most interesting part of its business. The concerns were real because analysts who had been at the meeting quickly began to downgrade their profit forecasts and the share price started to haemorrhage value — losses from which it has yet to fully recover. It is hardly a surprise that the regulator, the Financial Conduct Authority, ordered the company to rectify any potential misunderstandings.
Hiscox was established in 1901 to provide insurance cover for ships and their cargoes through the Lloyd’s of London insurance market. The £3.5 billion group, which was promoted to the FTSE 100 index of Britain’s biggest listed companies in December, still insures risks through Lloyd’s syndicates, but it now has the financial clout to write policies directly to companies, and part of the allure of its retail unit is the cover that it also provides to wealthy households and car owners.
The main focus of analysts’ and investors’ attention at Hiscox has been the retail division, which encompasses protection offered to individuals and small and mid-sized businesses in Britain, continental Europe, the United States and Asia. It also includes the highly tailored cover that it writes for fine art, jewellery and classic cars.
While continuing to be profitable, this unit has been under pressure as a result of heightened competition, unattractive market prices and the wider decline in the macroeconomic outlook that has made life tougher for its individual and corporate customers. In its initial trading guidance, Hiscox told investors that it was aiming for the retail division to generate a combine ratio — the amount paid out in claims against the amount received in premiums — of between 90 per cent and 95 per cent “over the medium term”. For an insurer, 100 per cent represents breaking even and anything below that means profitability.
In its later clarification, the insurer added the additional detail that it expected improvement to come at a rate of about 1 per cent to 2 per cent a year between now and 2022. In many ways, actually, that is hardly a revelation: for most of the City, medium term is shorthand for a period of three to five years and Hiscox effectively is saying that it will take four years for profitability in the retail division to return to the level it was recording last year.
In short, there is nothing broken at Hiscox, but shareholders will have to bide their time for the biggest profits engine to begin firing on all four cylinders again, and a little longer than analysts had been expecting.
The hiding that the shares have taken in the meantime e has chipped away at what is traditionally a premium valuation. Up 22p, or 1.8 per cent, at £12.42, Hiscox shares trade for about 20.7 times Jefferies’ forecast earnings and offer a yield of just under 2.9 per cent. Having to wait doesn’t change the investment case for a share that, at the very least, is worth holding for the long term.
Advice Hold
Why The market backdrop is an unattractive one but Hiscox’s business is nevertheless in strong shape
Hyve Group
When Mark Shashoua took charge of the Hyve Group just over three years ago, it was known as ITE, ran a sprawling network of disparately managed events and exhibitions and its revenues were deteriorating at double-digit levels each year.
The former boss of i2i, Ascential’s events business, Mr Shashoua, 49, put in place a turnaround plan to centralise operations and concentrate only on industry shindigs that were essential for the world’s corporate decision makers. Fast-forward to today and his “transformation and growth programme” is all but complete. The 269 events that the company staged when he became chief executive have been cut to 130 and essential functions have been centralised.
Numis, the house broker, is forecasting that next month Hyve Group will deliver annual revenues of £219 million and pre-tax profits of £50.4 million, an improvement against the previous year of a respective 24.6 per cent and 42.4 per cent. Job done, perhaps?
Hyve Group was founded in 1991 and, initially staging trade events in Russia and the post-Soviet republics, its reputation was built on its emerging markets expertise as ITE. Now it runs events for sectors ranging from education to mining, but has continued its forerunner’s predilection for growth through acquisition. Last year, it bought the Africa-focused Mining Indaba events business for £30.1 million and Ascential’s events division for £300 million, including debt.
The sector is getting ever more crowded and Hyve has to go up against the likes of Informa and Relx. Although it is considerably smaller than these two rivals, it distinguishes itself as the only pure-play events business with no ancillary revenue streams. It clearly is in good shape, in no small way thanks to the efforts of Mr Shashoua, yet despite his best efforts, Hyve’s shares have been depressed by the macroeconomic pressures on its markets, from sanctions to trade wars to Brexit. Down ½p, or 0.7 per cent, at 82½p yesterday, the shares trade for just under 17 times Numis’s forecast earnings for a dividend yield of 3.1 per cent. Worth holding on to.
Advice Hold
Why Well placed after impressive turnaround but shares lack momentum
