Black Monday For Sanne Group Plc; Hiscox Ltd Too Ends On A Subdued Note

  • Jul 30, 2019 BST
  • Team Kalkine
Black Monday For Sanne Group Plc; Hiscox Ltd Too Ends On A Subdued Note

Sanne Group Plc (SNN)

Shares of Sanne Group Plc nosedived on July 29, 2019, with share ending 254 points or 33.78% below its previous closing price. This was mainly triggered by lower operating margin expectation recorded by the group for the first half of the FY19 and management’s statement that the expected full-year operating margin for the FY19 would be lower than their previous expectation.

Business overview

Sanne Group Plc is a London-headquartered company engaged in outsourced alternative assets and corporate services. The group is engaged in providing administration and fiduciary services to their large pool of clients ranging from alternative investment managers, ultra-high net worth individuals (UHNIs), Financial Institutions, family offices and corporates. As per the latest exchange filing, the group has employed more than 1600 employee and have globally diversified geographical presence in the Americas, EMEA and Asia-Pacific. As on April-01-2015, its shares got listed on the main market of the London Stock Exchange for trading. Aviva Investors Global Services Ltd., Standard Life Investments Ltd., Fidelity Management & Research Co. and Wellington Management Co. LLP are the major institutional investors in the group. (Source: Thomson Reuters)

Key Takeaway from H1 FY19 Trading Update

During the period under consideration, the group recorded organic revenue growth of 13% (at a constant currency basis), and post taking consideration of prior year acquisitions the group delivered revenue growth of 17% on a constant currency basis. The recorded growth was mainly driven by solid performances in all the core alternatives and business division across its operating jurisdiction. However, performance during the year under review was partially counterbalanced by softened performance recorded in their European Corporate and Private Client businesses.

Also, in the first half of 2019, the company secured a record level of new businesses from both existing and new clients.

Sanne’s Alternative business globally recorded a growth of around 22% on a constant currency basis, out of which North America witnessed growth in excess of 25% on a constant currency basis, however its Asia Pacific Mauritius Alternative segment recorded a growth of 14%. Post considering contributions from 2018's acquisition, group’s EMEA Alternative segment witnessed a growth of 25% on a YoY basis. Also, it was mentioned in the statement that both the acquisitions exercise in 2018, performed well in the first half of FY19. During the period under review, the company has opened new offices in Mumbai, India and Tokyo, Japan to capitalise growing opportunities in both these markets.

In the statement, the group mentioned that operating margin for the H1 FY19 is forecasted to be approximately 26%, which would be below their previous estimations for the current financial year. It was mainly impacted by inflated overheads during the period under consideration and the combination of other items. However, they have mentioned that they have already taken some measure to address this issue and executed initiatives to increase the full year margin.

The board of the Sanne Group Plc has forecasted a full-year operating profit margin would be in between 28% to 30%, though it is also relatively below their previous full-year expectations.  However, operating cash conversion during the H1FY19 was in excess of 100%.

Stock Performance

5-day share price chart (as on July 30, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (before the market close, at 10:46 AM GMT), shares of the SNN were quoting at GBX 532.94 and added approximately 34.0 points or 6.87% in day’s session. In 30th July 2019 session, the stock saw a trend reversal as buying interest rises after a price plunge in the previous day’s session, also the 3-day RSI of the stock indicates a trend reversal in the stock.

In the year-ago period, the stock has registered a 52w high of GBX 762.0 and a 52w low of GBX 446.50 respective. The outstanding market capitalisation of the company stood at £726.57m, which ranks it among the small-cap companies listed on the London bourse.

On a YoY basis, shares of the Sanne Group have delivered a negative price return of approximately 30% and were also down by approximately 30% in the last one month. In the past five trading session, the stock plunged by approximately 32%. Following a slump in its stock price, the stock at its current trading price was quoting considerably below its 200-day, 60-day and 5-day simple moving average price.

At the current trading level, the dividend yield of the company stood at 2.77%, and LTM PE (x) was quoting at 39.58x.

Hiscox Ltd (HSX)

The property and causality insurance company recorded an increased volume of claims during the first half of the FY19 against the volume of claims recorded in the year-ago period. 

Bermuda-headquartered, Hiscox Ltd is a global property and causality insurer. The group has invested substantially in creating a powerful brand that offers value to the customers and drives its growth. As per the latest company filing, the group has employed more than 3,330 people across fourteen countries. The group offers a range of specialist insurance products for professionals, corporate customers and homeowners through its retail business in the UK, Europe, Asia and the US. As on December-12-2006, its shares got listed on the main market of the London Stock Exchange for trading. Fidelity Management & Research Co., BlackRock Investment Management (UK) Ltd., MFS International (UK) Ltd. and Invesco Asset Management Ltd. are the major shareholders in the insurance group. (Source: Thomson Reuters)

Takeaways from H1FY19 Interim Results

During the period under consideration, the company’s gross premium written recorded a growth of 7% on a constant currency basis and stood at $2,337.5m from $2,228.8m recorded in the H1FY18, this was driven by growth recorded in each business segments. Net premium earned in the H1FY19 was 2.8% above the Net Premium earned in the H1FY18 and stood at £1,313.8m. Driven by good investment return of 4.8%, its pre-tax profit moved up by 3% on a YoY basis to $168m.

The group recorded an Earnings per share of 51.2 cents against 52.2 cents recorded in the first half of 2018. And, the board of the Hiscox Ltd has announced an interim dividend of 13.75cents, up by 3.8% on a YoY basis. The record date for the H1FY19 interim dividend is August 09, 2019 and the payment date will be September 11, 2019.

The annualised return on equity (ROE) for the period under consideration stood at 13.3%, same as recorded in the first half of 2018. However, annualised investment return surged substantially to 4.8% as compared with 0.7% recorded in the year-ago period.

During the quarter under review, the group made foreign exchange gain of $15.6m against the loss of $8.5m recorded in H1FY18.

Claims volume mounting up

As the insurance industry is passing through tough times following the catastrophe events took place in 2018, including Typhoon Jebi in Japan and Hurricane Michael in Florida. The insurance market witnesses continued deterioration as the insurance industry's loss estimates mounted materially post occurrence of catastrophes in 2018. As a consequence, Hiscox has increased reserves for prior-year claims from Hurricane Michael and Typhoon Jebi.

The increased reserves to deal with these events is approximately $40m net, however, last year, the company was benefited from prior-year releases from hurricanes Harvey, Irma and Maria, which totalled $25 million, but it did not enjoy the same benefits this year. A combined ratio of the Hiscox surged considerably from 87.9% in H1FY18 to 98.8% H1FY19.

Stock Performance

 Daily price chart (as on July 30, 2019), before the market close. (Source: Thomson Reuters)

After the group reported the increased volume of claims in the H1FY19, as on July 29, 2019, its shares ended the session in the red as on July 29. Shares of Hiscox Ltd delivered a price return of 20.16% on a YoY basis and 9.19% on a YTD basis. At the time of writing (before the market close, at 12:30 PM GMT), shares of the company were quoting at GBX 1,767.0 and declined 4 points or 0.22% in day's session. Its shares have registered a 52w high of GBX 1,795.0 and a 52w low of GBX 1,411.0 respectively.

From the volume standpoint, the 5-day average volume traded in its shares were approximately 29.60% below the 30-day average daily volume traded on the London Stock Exchange.

Also, at the current trading level, shares were quoting well above its 200-day, 60-day and 30-day simple moving average prices. A price above the 200-day simple moving average price indicates a long-term uptrend in the stocks.  The 14-day and 30-day RSI of the stock were hovering in the neutral zone.

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