Shares in Hastings, the insurer which makes most of its sales through price comparison websites, have lost 43 per cent in the past two years, closing yesterday at 185¼p. That is a lacklustre return for a company which floated four years ago at 170p a share (Katherine Griffiths writes).
The Bexhill-based company was set up to be a new type of insurer, with low costs and a focus on direct sales. Its growth raced away on the back of playing nimbly in the price comparison market, which accounts for just over 90 per cent of its business. Hastings now has almost 8 per cent of the UK car insurance market.
The company is not entirely responsible for its limp share price performance. The general insurance market in the UK, particularly cover for cars, has been suffering for about a year and a half, after a good run of pricing and profitability turned into insurers slashing their prices and seeing their margins eroded.
Hastings claims the phase of falling prices in motor insurance came to an end in the past three months and that prices have started to rise. But shareholders were more interested yesterday in the fact that the cost of paying claims has risen at 6 to 7 per cent, higher than it had previously guided. That is due to a range of factors: cars getting more sophisticated and therefore more expensive to repair accounts for some of the problem. But with fancier features comes greater safety, so overall that trend is not too damaging for insurers.
More concerning is the fact that claims management companies and other insurers are charging insurers more for car hire and repairs, when a driver is at fault for an accident. Hastings’ loss ratio has risen to 79.1 per cent, from 73.8 per cent a year ago, as a result of these higher charges and other factors.
Hastings’ operating profit fell to £59.7 million in the six months to June 30, down from £105.1 million a year ago. That fall was partly due to a £8.4 million hit Hastings took because of the government’s ruling in July over the way compensation is calculated for compensating the victims of catastrophic accidents.
The Ministry of Justice has increased the so-called Ogden rate from -0.75 per cent to -0.25 per cent. Insurers had expected it to rise to zero or even to break into positive territory, settling at about 1 per cent. The negative level means insurers have to pay slightly more than the headline figure to accident victims, to take account of the low interest-rate environment and chance that the individuals could lose some of their money through investment.
Hastings and others have recognised a cost for the change along with their half-year results. They have also welcomed the fact that the rate is now set after months of uncertainty and will remain the same for five years at least.
Hastings has 2.8 million customer policies and makes 90 per cent of its money in the car insurance market, with the rest from bikes, vans and home cover.
Hastings has a key advantage over some of its competitors — its focus over the years on technology, allowing it to play successfully in the price comparison market. Last year it went through a major tech overhaul that has enabled it retain more customers and win new business.
Toby van der Meer, 42, took over as Hastings’ chief executive in March last year from Gary Hoffman, 58. A lower profile figure than Mr Hoffman, Mr Van der Meer has long experience in technology and pricing movements, having previously been a managing director at moneysupermarket.com.
Those areas are key to most insurers’ future success, and many of Hastings’ larger competitors are rushing to catch up with its know-how.
ADVICE Buy
WHY The company has been buffeted but its model is smart and it has been oversold
Coca-Cola Hellenic Bottling Co
Most doctors tend to advise their patients avoid caffeine before bed, but the world’s third biggest bottler of Coca-Cola is pinning its hopes on becoming a “24/7” beverage business (Ashley Armstrong writes).
Coca-Cola Hellenic Bottling Company sells more than two billion cases a year to 28 countries and makes about 69 per cent of its drinks under licence for Coca-Cola, including Fanta and Sprite. The company is now trying to broaden its portfolio from daytime drinks to tap into the lucrative bar and restaurant market, where so-called “adult soft drinks” are growing twice as fast as health-conscious consumers shun sugary sodas and opt for more upmarket mixers and non-alcoholic options.
The blue-chip business yesterday posted a 3.8 per cent lift in sales to €3.4 billion (£3.1 billion) for the six months to the end of June. Growth was held back by poor weather, which dampened demand in Croatia and Russia, although this was partly offset by strong sales in Nigeria.
Coca-Cola HBC fell short of forecasts after revealing a 4.9 per cent dip in operating profits to €288.9 million, against City consensus of €319.8 million. The company blamed the miss on €30 million of extra restructuring costs relating to a string of changes including altering its packaging in Nigeria and changing supply routes in Italy. Coca-Cola HBC’s preferred measurement of comparable earnings before interest and tax, which strips out the restructuring hit, showed a 4.7 per cent rise to €325.1 million. The business has set itself a goal of delivering an 11 per cent comparable Ebit margin by 2020, and while last year’s performance came close at 10.2 per cent, the hit from restructuring dragged it back to 9.7 per cent in the half year. Despite the profit miss, Zoran Bogdanovic, chief executive, has given reassurance that revenue growth will be within the range of 5 to 6 per cent, higher than most fast-moving goods companies.
The company’s shares fell by as much as 6 per cent, making the shares cheap particularly given its large exposure to burgeoning emerging markets.
ADVICE Buy
WHYPlenty of growth potential by expanding markets and product ranges
