RSA below 90p becomes "bid subject"
Shares in LSE:RSA:RSA Insurance Group plunged 32% in early trading on Friday on the completion of its Irish reserve review which was accompanied by the stepping down of chief executive Simon Lee and another profit warning.
Yet some people saw an opportunity for a takeover in the offing.
Martin Scilcluna is to become executive chairman while the search for a new group chief executive is underway.
At the start of November, in its interim management statement, RSA warned of a potential shortfall in its Irish reserves due to an increase in bodily injury trends across the motor market in the country.
The group said at the time: "It is too early at this stage to draw any firm conclusions or to reliably estimate the likely financial impact. Nevertheless, it is probable we will need to strengthen our Irish bodily injury reserves and this will also adversely impact the group’s 2013 performance."
On Friday RSA said an additional £130 million would be pumped into the division to strengthen its reserves and ensure the solvency ratio of RSA Insurance Ireland is maintained above 200%.
This is in addition to £70 million already announced on 8 November relating to claims and finance issues in Ireland, an announcement which saw the division’s chief executive Philip Smith suspended alongside two other senior executives.
http://www.iii.co.uk/articles/128205/rsas-woes-will-plague-it-new-year
Further adverse weather experienced in the UK and Scandinavia has also led to net claims of £25 million for the group in December.
All of these factors together have led the group to reduce its anticipated 2013 earnings, which are now expected to reach mid-single digit return on equity.
"The impact of events in the last quarter will need to be taken into consideration when the board determines the 2013 final dividend recommendation in February 2014," RSA added.
The group reduced its dividend by almost a third at the start of 2013.
Scicluna, RSA chairman, said: "Lee felt it was in the best interests of the group that he step down to enable a change in leadership. He has offered to help in any way he can to ensure a smooth transition.
"The significant reserve strengthening in Ireland represents a further negative event and places additional strain on the capital metrics of the group. The impact of this reserve strengthening, alongside the extreme weather in 2013 and the effect of financial irregularities in Ireland will be taken into consideration in the board’s dividend decision in February," he added.
A full review of the group’s businesses has been initiated with the objectives of improving the capital strength of the company, optimising the business portfolio and delivering a sustainable dividend in the future.
Scicluna said investors would be updated on the progress of the review at the full year results presentation.
Analyst view
Panmure Gordon’s Barrie Cornes, said: "Profit warnings tend to come in threes and that’s proved to be the case for RSA. CEO Simon Lee has been replaced and the 2013 final dividend flagged as being under threat. We cut our 2013 earnings by 35%, dividend by 30% and target price to 90p per share (98p previously).
"However, should the shares trade below 90p per share we think that there is a real possibility that RSA could be the subject of a bid approach given the quality of some of its businesses."
Investor view
Over on the Interactive Investor discussion board, ‘Yorkists’ said: "You cannot touch this company at present because you have no way to value it, but surely it will be sold/absorbed into a company that not so long ago it had aspirations to buy?"
Meanwhile ‘Marshy_s’ obviously thought there was opportunity ahead: "Was set to buy at shy of £1 yesterday but got stuck in a meeting all day. Beaming from ear to ear, thought the Irish debacle was priced in."
‘Gamesinvestor’ was also puzzling whether RSA was an opportunity or ‘uninvestable’: "Well it looks like they are taking action – the severity is still not yet fully known because the review is ongoing and the impact on the dividend is not yet decided. Is this a punt or a one-time opportunity to buy on the cheap."
Some obviously agreed, by 9:00am shares had recovered to sit 15.6% down at 84p.
Shares in RSA Insurance Group plunged 18.5% in early trading on Friday on the completion of its Irish reserve review which was accompanied by the stepping down of chief executive Simon Lee and another profit warning. Yet some people saw an opportunity for a takeover in the offing.
