With a rebound from the crunch years expected, coupled with a steadily-recovering dividend after 2012’s forced rebasement, 2014 looked set to signal the start of a recovery at RSA Insurance (LSE: RSA) (NASDAQOTH: RSANY.US).
But in its first quarter, the insurance giant saw underlying net written premiums fall by 4% at constant exchange rates. At actual exchange rates, the unadjusted headline figures looked considerably worse — down 16% overall, with a 17% fall in the UK and a massive 24% slump in Ireland.
Although the company reckons underlying trading is in line with its expectations, these figures must be a little disappointing for new boss Stephen Hester, who took the helm in February after his success in turning round Royal Bank of Scotland.
Early days
Still, the markets don’t seem too unhappy at today’s figures, with the share price dropping a mere 0.8p (0.8%) to 97p by mid-morning — the optimism that came with Mr Hester’s appointment doesn’t seem to have been damaged too much. In fact, RSA shares are up 20% since the start of 2014, although the price is still some way down from the levels it achieved before the annual cash payments were slashed.
Speaking of the latest figures, Mr Hester focused more on the longer term, saying that “We set out a clear action plan in February to transform the performance of the business and have made a good start in implementing it“, but he did point out that poor weather in the UK, Ireland and Canada had damaged the company’s profits in Q1.
We also saw modest further writedowns in the firm’s Irish business, stemming from strengthening the firm’s capital position after last year’s accounting irregularities.
No change to expectations
The company says its expectations for the full year are unchanged, telling us it still aims for “returns on tangible equity of 12-15% on a rising tangible equity base“.
Analysts’ forecasts are unlikely to change, then, with two years of flat earnings forecast for 2014 and 2015. Beyond that we really can’t tell, but confidence in RSA’s new leadership and strategy has inspired the pundits to predict a return to strong earnings growth.
Dividends should be boosted by 5% this year to yield around 2.5% on the current share price. That’s not a great yield, but it’s not bad as a restarting level, and there’s a rise to 3.4% penciled in for 2015 — and the payments should be more than adequately covered.
A good recovery stock
On balance, I think we’re still looking at a good opportunity to get in at the beginning of a solid recovery, and I can see the first signs of a return to growth giving the share price a lift when they show.