Interactive Investor

Insider: chief raises stake in this FTSE 100 reject

After losing its spot in the premier index during last week's quarterly reshuffle, this CEO is betting on a quick return to the top. There’s also heavy buying of this interesting AIM stock by an ex-FTSE 100 director.

4th September 2023 08:37

by Graeme Evans from interactive investor

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The boss of Hiscox Ltd (LSE:HSX) has staked £150,000 on the specialist insurer bouncing back after its relegation from the FTSE 100 index was confirmed last week.

Aki Hussain made his investment at 1,004p, having seen shares fall 10% since half-year results on 9 August missed City expectations. They also included weaker guidance for growth in the company’s largest division providing home and business insurance.

The retail arm’s downgrade, which was partly blamed on a surge in competition in the US cyber security market, offset Hiscox’s strong progress insuring big-ticket risks through the Lloyd’s of London market and its reinsurance division.

The slide in valuation towards £3.5 billion left Hiscox short of the level needed to retain top flight status in September’s quarterly reshuffle, having only secured promotion in January.

Hussain’s latest purchase of shares echoes his upbeat tone at the time of the results. He pointed out that Hiscox had delivered growth in revenues and profits in every business unit, reflecting “proactive and disciplined” underwriting and favourable market conditions.

His optimism is shared by analysts at UBS, even though last month’s headline earnings per share figure of 72.2 US cents a share came in 15% short of their estimates.

The Swiss bank, which had a price target of 1,550p after the results, said that Hiscox continued to demonstrate effective cycle management as the company leans into the “hard market” conditions benefiting reinsurance and Lloyd’s underwriting.

Rate increases have been strongest in reinsurance amid the best market conditions in over a decade. Hiscox described a “seismic” shift in January renewals pricing following Hurricane Ian in Florida, with North American natural catastrophe cover driving an average 34% half-year rise. The sixth successive year of improvement takes gains to a cumulative 95% since 2018.

Property lines led a 9% rate increase for the London market, meaning an overall 72% cumulative rate increase since 2018.

Hiscox Retail saw an average 6% increase, but this was tempered by competition on the US cyber product line and as the company opted not to sacrifice the quality of earnings. This will mean full-year growth is likely to be in line with the half-year trend.

However, the company is encouraged by its progress building America’s leading small business insurer following the launch of a new technology platform.

The interim dividend for payment on 26 September has been increased 4.2% to 12.5 cents a share, and UBS sees scope for additional capital distributions at the year-end, dependent on the hurricane season and capital deployment opportunities.

Peel Hunt, which has an “add” rating and 1,330p target, said this month: “We remain positive about the long-term outlook for Hiscox and the speciality reinsurance market in general.” The shares closed the week at 1,009p, which compares with 1,118p when Hussain made a previous investment of £150,000 in March. He joined Hiscox in 2016 as chief financial officer, having earlier been at Prudential UK and Lloyds Banking Group, and was appointed chief executive in January 2022.

Should you go with the Flow?

AIM-listed Flowtech Fluidpower (LSE:FLO) saw £400,000 of boardroom buying on Wednesday after the company’s new boss set out a refreshed growth strategy focused on a “world of motion”.

Chief executive Mike England, who joined in April after three years as chief operating officer at FTSE 100-listed RS Group, plans to expand product and engineering capabilities across the wider power, motion and control sector.

In doing so, the company will increase its market share opportunity in Europe from £10 billion to about £30 billion. It will also transition to a single brand and operating model.

The immediate priority for England will be on 'self-help' interventions as a new leadership team looks to improve performance in the face of slowing industrial output and production.

These headwinds contributed to the Wilmslow-based group of specialist fluid power businesses last week reporting an £800,000 fall in underlying earnings to £5 million. Revenues were 2.8% higher at £59 million, with growth in the solutions and services divisions offset by a disappointing performance within product distribution.

The downturn had been flagged by the company at the end of July, sending shares 27% lower. They closed last week at 93.4p, but house broker Liberum continues to have a 150p target as it backed the strategy to deliver a mid-teens operating margin in the medium term.

Last week’s post-results share buying was led by chair Roger McDowell, who now has a 1.7% holding following his £247,800 purchase. England spent £50,000 and a person connected to non-executive director Jamie Brooke picked up £95,000 worth of stock, all at a price of 82.6p.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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