When founders and early institutional investors in a company choose to sell shares a year after the float, other investors who have been in for less time are entitled to wonder if they should do the same.
Several shareholders in Hastings Group, including Goldman Sachs, saw their sale go through at 216p a share, representing 7 per cent of the share capital. They could have sold after about six months, as is normal with such lock-ins. One reason why they waited until now was that the share price was sitting at or around the 170p-a-share flotation price, and at a time somewhat below it, until the summer.
It is fair to say that the market had its doubts about Hastings in October last year. The price came in at a bit below the initial hoped-for range. Hastings claimed to be a disruptor, using technology such as the Guidewire platform, which is used by other insurers, to improve efficiency. It gets almost 90 per cent of its new motor premiums by means of price comparison websites.
Neither of these were greatly trusted by the market. Hastings still has a low market share, 6.2 per cent of the motor insurance market. It intends to grow this to 8 per cent and beyond.
Those doubts were allayed when the company reported its first set of interims as a quoted company in August. Hastings had set four targets to achieve by the end of 2017, including reducing debt and exceeding 2.5 million customers. It became obvious that these would be reached and probably exceeded.
Whenever the founding investors sell out, there is always the argument put up by advisers that they were doing it to enhance liquidity in shares that are not always easy to come by. Believe that if you will. We are assured that there was never any intention to sell anything more than a relatively small stake and it means that those pre-IPO investors are still sitting on 65 per cent.
Those shares must still be regarded as overhanging the market. The shares themselves reacted with a 5½p fall to 223p, not bad in the circumstances. The yield is below 4 per cent. The only way to judge the shares is on ability to grow that customer base, and that is encouraging enough for a buy.
My advice Buy
Why Hastings should continue to add motor customers because it has the technology to do so and still only a small market share
Topps Tiles
Investors are understandably nervous of any sign of a post-Brexit slowdown, expecially in the housing market. Topps is reliant on house moves, which encourage new owners to get rid of that hideous bathrooom suite they inherited, or on investment in repairs and maintenance that can be deferred.
There was a definite slowdown in trading in the fourth quarter, which ran until October 1 and covered the three months immediately after the referendum. There are a couple of extra factors that fell into that quarter. Topps stopped selling cheap wooden flooring and this probably accounted for a 1.5 per cent slide in sales, which will continue into this financial year.
This suggests that the like-for-like rise was nearer 3 per cent, against the 1.4 per cent reported. This was still down on the first three quarters, but there may have been some pull forward into the second quarter as buyers rushed to take advantage of looming changes in stamp duty for buy-to-let properties. It is hard not to conclude, though, that overall confidence did take a hit in those turbulent months this summer.
Still, forecasts of revenues of £215 million for the financial year are intact, little-changed from last time, and there will be some benefit to margins from the switch to more expensive tiles.
Topps shares, which were hit badly by the referendum, tumbling from about 150p, lost another 9¾p to 101¾p. The story is all about market share growth from opening about 15 stores, net, a year. On 11 times earnings, that fall looks overdone.
My advice Buy
Why The shares have fallen so far they begin to look cheap
JRP Group
JRP is another of those shares where the market unaccountably took fright after the referendum and then decided life would go on and marked them up again.
At well below a pound in the summer, they looked like good value. They are rather less so today, flat at 142p after a capital market day at which investors were reassured that this year’s merger creating the company, between Just Retirement and Partnership Assurance, was on course to provide the promised cost savings.
These were upgraded when the company announced halfway figures last month, by 13 per cent to £45 million by the end of 2018. So far £15 million has been achieved since the start of April; the merger should have strengthened the capital position and allowed further growth in the annuities business.
That market has stabilised again after changes were made in the pensions freedoms budget. Those halfway figures showed annuities moving ahead again and the company said it was targeting a rate of return on new business in the mid-teens once the savings are complete. That recovery suggests further upturn may be limited.
My advice Avoid
Why The share price recovery looks complete
And finally...
3i, the quoted private equity group, has offloaded its investment in ACR Capital Holdings to a couple of Chinese financial investors. This is Asia’s first reinsurance company, established in late 2006. The sale proceeds are £182 million, a useful uplift to the £128 million valuation at the end of June. This is not quite in the league of Action, the European discount retailer where 3i had a huge rise in the value of its investment in the summer after approaches for the business; 3i sensibly decided not to sell.
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