Jelf wants to attract bidders

Insurance broker Jelf's market value is up by almost a half this year, yet the shares have traded sideways since the spring. Insurance premiums are under pressure and the company will likely depend on acquisitions to drive earnings growth over the next 12 months. But it could be Jelf that becomes the prey, and management have been handed big incentives to make sure it happens.

A new incentive scheme for executive management and a few sales guys was announced alongside final results. It will only be triggered if Jelf is taken over for more than a predetermined threshold price, which Jelf says has been set at a significant premium over last Friday's closing price of 123.5p.

"The non-executive directors believe that it is in the interests of the company and its shareholders if management are incentivised to deliver exceptional performance which could lead to a highly attractive exit valuation for the company," said the firm Monday. "In addition, they believe that it is in the interests of the company that key executives and revenue producers are incentivised to remain with the company up to the date of any possible transaction."

Says house broker finnCap:

Applying an acquisition multiple of 12 times EBITDA to Jelf gives £190 million which on a diluted equity basis of 122 million shares equates to 156p. Any cyclical improvement in rating premiums would benefit earnings and lift a proposed exit price nearer 200p.

Revenue was up 8.4% in the 12 months to 30 September to £82.6 million and profit after tax jumped 40% to £6.5 million. Earnings were given a boost by its acquisition of The Insurance Partnership in June 2013, which is delivering ahead of expectations, and two bolt-on acquisitions worth £400,000 in the period.

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"Despite tough markets, Jelf put in a robust performance for 2014, achieving ambitious estimates and securing a good result from the purchase of TIP," said finnCap analyst Duncan Hall. "Without help from insurance markets we envisage acquisitive growth as the main driver for earnings, with underlying progress taking adjusted EPS to 9.5p for 2016."

New "ambitious" three-year objectives are being communicated to shareholders and management are remaining cautiously optimistic as the British economy improves.

"Although markets remain intensely competitive, we believe that continued focus on our core segments, our strong balance sheet and our reputation for client service will enable us to deliver further profitable organic growth," it said. "We will continue to look at further acquisition opportunities where we can see good synergies, a cultural fit, sensible prices and value for shareholders."

"A strong balance sheet, a well-positioned customer offer and a proven acquisition model within a sector experiencing consolidation leaves Jelf an attractively priced proposition," added Hall.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.