Stephen Hester has demonstrated that his action plan to turn around RSA Insurance is running ahead of schedule, leading to the suspicion that the targets set out for 2017 will be exceeded — as indeed, they almost always are in such situations. The only question is whether he and the company will still be there by then.
The noises coming out of Zurich Insurance, outed as a potential bidder late last month, are contradictory, as are analysts’ hopes of where any bid may be pitched. Some dream of £6 a share, others think the Swiss insurer will pay a bit above £5, an offer that would seem to have little chance of success.
It would have to be an agreed deal, and Zurich has until only August 25 to reach that agreement. Experience suggests that once such deals are out in the open, they tend not to materialise. That would be my forecast in this case. It leaves the question of whether investors should take profits on the bid premium — the shares were below £4 a month ago — or stick around.
I would favour the latter, even though, should no offer materialise, the shares will fall. Mr Hester expects that by 2017 RSA will be seeing a return on equity of 12 to 15 per cent, against below 10 per cent at present, after cost savings of £250 million or more.
A gradual return of dividend payments would provide a decent yield, with the prospect of special payments to mop up surplus capital where it emerges. The halfway figures show improvements in Ireland — inevitably, given this was the source of the black hole last year — the UK and Canada. The UK motor sector remains difficult but the benign weather was a positive.
Scandinavia was disappointing, but the UK, Canada and Scandinavia will remain the core of the business and, indeed, are why Zurich is interested. The disposal programme is largely complete, though operations in Latin America, Russia and the Middle East may yet be sold.
The shares lost 14p to 510p, on the assumption that disappointing figures from Zurich make a bid less likely, which makes no sense whatsoever. There is not a lot to justify the current share price, but the strength of the recovery make them a good long term prospect. And that approach may even materialise.
Operating profit £259m, up 84%
12 - 15% Forecast return on equity by 2017
MY ADVICE Buy long term
WHY There must be doubts that a Zurich bid will ever emerge but, even without that, the rescue plan at RSA is running ahead of plan
Is it now time to dive back into Aggreko shares again? The answer is, only if you’re very, very brave. Chris Weston, chief executive since the start of the year, has unveiled his plans for the temporary power provider, along with some lacklustre halfway figures, but has made it clear it will be two years before the company is back to the sort of growth and margins it used to enjoy in its heyday.
There should have been few surprises in the figures, given the last profit warning was just a fortnight ago. There is much about the need to invest in new technology, but the next generation of gas plant will not enter the market until the second half of next year.
The cost savings are welcome, though it is a surprise there is £40 million in efficiencies to be taken out still, given the problems the company has had. Other savings will come from the restructuring already announced, which broadly splits the group into short-term work — events and the like — in the developed world and the rest.
The shares fell another 57p to £11.30. They are now at their lowest point for more than five years but still sell on 16 times earnings. Hard to see much upside at this stage.
Revenue £781m
Dividend 9.38p
MY ADVICE Avoid for now
WHY Hard to see any catalysts to drive the price higher
One senses that the market was braced for more bad news from Cobham which failed to materialise. The shares in this maker of aerospace electronics, which gets a third of its revenues from US defence, have been undermined since the spring by technical problems with its flight refuelling systems which required a £15 million writedown, as well as some weakness in land and marine markets because of lower demand for products to go into satellites.
This was itself down to lower demand from the oil and gas sector and the delay in the advanced Global Xpress satellite service after a launch failure in May. The refuelling issues are largely resolved and orders flowed through again in the second half. The next satellite goes up later this month, operator Inmarsat confirmed yesterday.
Cobham had earlier been hit by the withdrawal from Afghanistan and less demand for higher margin product supplied to the battlefield. The halfway figures, though, were transformed by the arrival last year of Aeroflex, at $1.5 billion the biggest purchase the company has made.
But for this, revenues would have been little changed and operating profits down a touch. As it is, Cobham reported a 24 per cent rise in trading profits to £160 million.
The Aeroflex purchase also moved the mix further towards commercial customers. Analysts expect both defence and commercial to return to growth next year. The shares, approaching 350p in the spring, added 17¼ to 279¾p They still sell on 13 times earnings, which looks like good value.
Revenue £1.04bn
Dividend 3.05p
MY ADVICE Buy
WHY Shares have fallen a long way, while growth is returning
And finally…
Mondi is one of the less well-known members of the FTSE 100 index, and in an area — packaging — that has few constituents and is not much researched. Another oddity: because of its dual listing in London and Johannesburg, it is required to pre-release all important figures. There was not a lot to complain about in the interims: volumes up, price increases coming through and upgrades of its plants running ahead of plan. The dividend is 9 per cent higher. The shares, up by a half so far this year, fell 2.2 per cent.
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