A Glance At Two LSE Stocks: Beazley PLC And Mondi PLC

A Glance At Two LSE Stocks: Beazley PLC And Mondi PLC

Beazley PLC

Beazley plc (BEZ) is a London; the United Kingdom-based company started in 1986. The company’s business is differentiated in five divisions: Specialty lines, Property, Marine, Reinsurance, and Political, accident & contingency.

The company’s insurance business covers around 87 per cent and reinsurance approximately 13 per cent of its overall businesses. The company's Specialty Lines (56%), including cyber & executive risk, segment underwrites environmental, management, and professional liability, with healthcare, lawyers, media, technology, architects and engineers, cyber, and business services, as well as officers and directors, and employment risk practices risks. The property segment (16%) of the company, offers homeowners’, commercial, and engineering and construction property insurance. Its Marine division (11%) underwrites several marine classes, comprising of cargo, satellite, kidnap and ransom, energy, war, piracy, hull, and aviation risks. The company’s reinsurance business (9%) focuses on the property per risk, aggregate excess of loss, casualty clash, pro-rata, and property catastrophe businesses. Political violence, terrorism, credit, and expropriation risks, as well as contingency and risks related to contract hinderances, are underwritten by the group’s Political, Accident & Contingency division (8%). This segment also underwrites personal accident, income protection, health, sports, and life risks.

Financial Highlights (H1 FY2019, US$ million)

(Source: Interim Reports, Company Website)

In H1 FY2019, gross premium written, surged by 12 per cent to $1,483.6 million as compared with the corresponding period of the last year, supported by rate surges, averaging 5 per cent over the portfolio. Net premiums written increased by 11 per cent to $1,225.50 million against the $1,105.3 million in H1 FY2018. The company attained a profit before tax of $166.4 million, an increase of 189 per cent from the previous year same period data. The combined ratio stood at 100 per cent against 95 per cent in H1 FY2018.

In the first half of the year, the scale of claims had limited the scope for reserve releases, which were $3.4 million as compared to $48.1 million in the same period of 2018. Net investment income stood at $170.3 million, an increase from the previous year same period data.

In H1 FY2019, basic earnings per share increased to 26.4 cents against the 9.1 cents in H1 FY18. Net assets per share stood at 295.4 cents, an increase of 14.1 cents as compared to 281.3 cents in H1 FY18. Net tangible assets per share were 272.4 cents, an increase from the corresponding period of the last year data.

The board has declared a first interim dividend per share of 4.1 pence, an increase of 0.2 pence against the 3.9 pence in H1 FY18, in line with the strategy of delivering in the range of 5 per cent to 10 per cent dividend growth. On 29 August 2019, dividend will be paid to shareholders on the registered date 2 August 2019.

Outlook

The company’s growth prospects are looking well-positioned to continue to grow in several markets such as healthcare, cyber, and environmental liability across the years. The company is seeing solid demand from the financial sector companies for a variety of complimentary insurance covers in Europe, Asia, and Latin America.

In the upcoming future, the company is planning to grow in the United States business. The company transact in the United States and is expecting a considerable opportunity for the upcoming growth in all the key lines of business. Changing market dynamics, a continued programme of investment in digital capabilities augur well for the group's future growth. Though, the group is highly exposed to exogenous factors which can severely affect its performance. The potential for a rise in frequency and severity of claims due to climate change can reduce the group's performance.

In the key category, the company’s growth prospect in the business is dependent on market behaviour. From the past two years, the catastrophe-exposed business losses and has also increased the premium rates. The company’s full-year combined ratio will get impacted, which will be in the high nineties.

At the end of the previous year, the company were visualising premium progress in the high single digits in the year 2019. In the financial year 2019, the company had seen the double-digit growth, due to the improving rating environment.

On 23rd July 2019, the company CEO warned that the prices for marine insurance would increase after the seizure of British-flagged tanker in the Strait of Hormuz.

Share Price Performance

Daily Chart as at 23rd July 2019, after the market closed (Source: Thomson Reuters)

On 23 July 2019, Beazley PLC shares closed at GBX 564.50, down by 0.4 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 604.50 /GBX 486.44. At the time of writing, the share was trading 6.62 per cent lower than its 52w High and 16.05 per cent higher than its 52w low. Stock’s average traded volume for 5 days was 1,535,718.00; 30 days - 1,303,398.67 and 90 days - 1,223,005.76. The average traded volume for 5 days was up by 17.82 per cent as compared to 30 days average traded volume. On the valuation front, the stock was trading at a trailing twelve months PE multiple of 20.9x as compared to the industry median of 14.5x. The company’s stock beta was 0.48, reflecting lower volatility as compared to the benchmark index. Total outstanding market capitalisation was around £3 billion, with a dividend yield of 2.11 per cent.

Mondi PLC

Mondi PLC (MNDI) is an Addlestone, United Kingdom-based multinational packaging and paper company. The company operates in central Europe, North America, South Africa and Russia. Recycled containerboards, speciality kraft papers, corrugated packaging products, industrial bags, films and hygiene components, consumer goods packaging products, printed laminates and high-barrier films for the consumer industry are the products offered by the company. The company is having an employee base of around 26,000 and have operations in over 30 countries worldwide with 100 production sites.

Key categories of products & solutions

Personal care components, corrugated packaging, speciality kraft paper, office and professional printing papers, bags and pouches, sack kraft paper, technical films, barrier coatings, containerboard, flexible packaging, release liners, and industrial bags.

(Source: Annual Report, Company Website)

The company has set the performance bar high. Over the last five years, the company has delivered a compound annual growth in basic underlying EPS of 15 per cent, with an industry-leading return on capital employed averaging 20.2 per cent over the same period. The company reported a five-year total shareholder return (TSR) of 74 per cent and recommended a total dividend per share of 76-euro cents. Over the period, the company’s TSR stood at 10.3 per cent for Mondi plc and 13.3 per cent for Mondi Limited, which placed it higher than the median of the comparative group. The company’s rank within the TSR peer group was seventh. The company remain confident to deliver long-term value to shareholders.

Trading Statement (as on 23rd July 2019)

The group is presently finalising its results for the H1 FY2019, which will be published on 1st August 2019. In H1 FY2019, the company expects underlying EBITDA to increase from the previous year same period to €852 million. Special items Net charges after-tax are projected to be around €2 million. In the previous year, the company’s special item net charges after tax stood at €81 million.

In the half-year ended 30 June 2019, the basic underlying earnings per share is expected to be in the range of €93-€99 cents, an increase of 4%-11% as compared with the same period the previous year. Basic earnings per share increased to be in the range of €93 cents to €99 cents against the previous year same period. Basic headline earnings per share will be in the range of €93 cents to €99 cents, an increase of between 9 per cent and 16 per cent against the €85.1 cents in the same period of 2018.

Financial Highlights (FY 2018, € million)

(Source: Annual Report, Company Website)

Due to higher average selling prices across all segments, in FY 2018, revenue (excluding the impact of acquisitions and divestitures) was up 4%, while total revenue increased by 5% to €7,481 million. Underlying EBITDA during the year climbed by 19% to €1,764 million against €1,482 million reported in 2017, as a result of the excellent demand in the fibre packaging segment, the contribution from the current acquisitions and surge in average selling prices. The underlying operating profit was up by 28% to €1,318 million in FY2018 as compared to €1,029 million in FY17, while total operating profit was up by 23% to €1,192 million. Profit after tax attributable to shareholders accelerated by 23.4% to €824 million as compared with the financial year 2017 data of €668 million. Basic earnings per share (EPS) rose by 23% in FY2018 to €170.1 cents, while basic underlying earnings per share during the year were €189.1 cents, up by 27% against the previous year. Bringing the total ordinary dividend for the year to 76-euro cents per share, the company recommended payment of a final ordinary dividend of 54.55-euro cents per share.

Outlook

Strategic acquisitions, along with strong organic growth, have considerably improved the company’s financial position, which has made the market confident about the prospects of the business. The company has also maintained its leadership position in both sustainable packaging and e-commerce. Also, a new project at the Steti mill to expand kraft paper for shopper bag capacity has been announced. Weakness in Consumer Packaging has continued mainly due to declining volumes in the personal care segment, but Mondi expects improvements in 2019. Strong production capabilities, vertically integrated operations, a wide range of end markets, business performance of fibre packaging segment and focus on sustainability are the company’s key strengths, even as financial leverage and safety issues remain causes for concern. Rising demand for containers and packaging in Europe, acquisitions, the launch of new products, strategic investments and restructuring could provide growth opportunities to the company.

Share Price Performance

Daily Chart as at 23rd July 2019, after the market closed (Source: Thomson Reuters)

On 23 July 2019, Mondi PLC shares closed at GBX 1,821, and increased by 1.760 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 2,250 /GBX 1,557.50. At the time of writing, the share was trading 19.07 per cent lower than its 52w High and 16.92 per cent higher than its 52w low. Stock’s average traded volume for 5 days was 5,896,174.60; 30 days - 2,351,297.07 and 90 days - 1,701,093.23. The average traded volume for 5 days was up by 150.76 per cent as compared to 30 days average traded volume. On the valuation front, the stock was trading at a trailing twelve months PE multiple of 11x as compared to the industry median of 15.7x. The company’s stock beta was 1.43, reflecting relatively more volatility as compared to the benchmark index. Total outstanding market capitalisation was around £8.84 billion, with a dividend yield of 3.64 per cent.

 

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