Record first half, momentum building
The recent interims confirmed that Covid-19 was minimally disruptive operationally in H1 20 and, ironically, may have improved both of R&Q’s divisions’ medium-term trading outlooks. As the pandemic and other industry events have generated significant losses for insurers, they have created the current ‘hardening’ market driving demand for Legacy and Program Management.The group reported a 30% increase in interim pre-tax operating profit to £10.4m. Economic commissions revenue was 88% up y o y at US$10.7m and there was a US$0.8m economic EBITDA gain (H119: US$0.3m loss). Legacy achieved a 17% operating return on tangible capital of (H119: 14.1%), 23.3% on tangible equity of 23.3% (H119: 16.4%), both well above 15% internal targets.
Portfolio Management reported 95% higher contracted premium to US$925m at the period end; it added ten active programs and now has 36 in total. Legacy services completed nine transactions across seven jurisdictions, acquired net reserves were 81% up at £267m.
R&Q has hit all key defined growth targets over the last two years and powered through pandemic-related economic and industry disruption. It reported record six-month divisional performance and, in both cases, new business pipelines, competitive positioning and the benefits of a ‘hard’ insurance market underpin potential to build high quality and increasingly visible revenues and grow margins in the next few years.
Underpinned by a rapid growth outlook, we regard the shares as materially undervalued standing at 11.2x FY20e EPS, with a 6.1% prospective yield, and at a steep discount to listed peers.
PT Argo Pantes Tbk is an Indonesia-based textile company primarily engaged in manufacturing yarns and fabrics. Its business consists of four production units, namely spinning, yarn dyeing, weaving as well as fabric dyeing and finishing. Its yarn products include combed cotton yarns, carded cotton yarns, cotton-and-polyester-blended yarns, polyester yarns and dyed yarns. It operates manufacturing facilities in Tangerang and Bekasi, Indonesia.
Gallagher (Arthur J.) is a holding company. Through its subsidiaries, the company provides insurance brokerage, consulting and third party claims settlement and administration services to both domestic and international entities. The company's segments are: brokerage, which is primarily comprised of its retail and wholesale insurance brokerage operations; risk management, which provides contract claim settlement and administration services for enterprises and public entities that choose to self-insure their property/casualty coverages and for underwriting enterprises that choose to outsource their property/casualty claims departments; and corporate, which manages its clean energy and other investments.
Marsh & McLennan Companies is a holding company. Through its subsidiaries, the company provides clients advice and solutions in risk, strategy and people. The company provides analysis, advice and transactional capabilities to clients. The company conducts business through two segments: Risk and Insurance Services, which includes risk management activities (risk advice, risk transfer and risk control and mitigation solutions) as well as insurance and reinsurance broking and services; and Consulting, which includes health, wealth and career services and products, and other management, economic and brand consulting services.
Randall & Quilter Investment Holdings is a holding and investment company. Through its subsidiaries, Co. acts as owners and managers of insurance companies, live and in run-off, as underwriting managers for insurers, as participators and managers of Lloyd's syndicates, as purchasers of insurance receivables and as service providers to the non-life insurance market. Co.'s has 3 segments: insurance investments which acquires and assumes legacy portfolios, insurance debt and provides capital support to Lloyd's syndicates; insurance services which provides insurance related services; and underwriting management, which provides management to Lloyd's syndicates and operates underwriting entities.
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