London, UK, 25 February 2022

Helios Underwriting (HUW): Initiation - Increased Lloyd's participation at the right time

Helios Underwriting is a successful aggregator of Lloyd's of London (Lloyd's) syndicate capacity, delivering a sixfold increase since FY16. This larger portfolio, alongside a hardening underwriting cycle, should fuel strong earnings growth. Helios's ability to acquire further limited liability vehicles (LLVs), offering ageing Lloyd's Members (Names) an elegant, tax-efficient exit plan, is limited by capital constraints. This will slow capacity growth until FY24 when the hard premium cycle should deliver strong earnings, unless Helios can raise additional capital sooner. Increased funding could fuel strong acquisitive growth for Helios in the remaining £3bn pool of LLV capacity. Helios's underwriting investment track record, diversified, outperforming underwriting investment portfolio, ability to enhance capital efficiencies (through diversification and reinsurance) and its long-term growth potential makes it an attractive investor entry point into Lloyd's and a unique exit solution for individual Names from Lloyd's.

Strong earnings growth and returns support our valuation of 212p/share at a 33% premium to FY21e NAV/share (a 33% premium to current price). There is valuation upside if more working capital can be generated and deployed in underwriting capacity growth, boosting value drivers. Issuing debt is most valuation accretive, followed by raising capital, while higher quota share reinsurance is largely neutral.

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