Highway Insurance Share Discussion Threads

[rivaldo] 02/1/2006 17:44

Karldinnel, surprisingly I'm not a Brazilian footballer, only an East London one. But I also fall over with Oscar-winning agility - does that count?

Happy New Year to HWY'ers - we should imo see a steady rise to 80p-85p prior to a trading update in February or final results in March, at which point with decent results as expected, a continued good investment performance and a 5p annual divi the price could march on to £1.

[markycrispy] 01/1/2006 11:51

Nice reverse head and shoulders pattern emerging. Should see a break out some time in January.

[gswredland] 29/12/2005 12:38

I know roch..still here but was getting frustrated!
Notice you in BUR to..good luck!

[rochdae] 26/12/2005 15:39

Looks good to me.

[peab1] 23/12/2005 11:40

Even with the drop today, the chart looks very bullish with an inverted head and shoulders. Looking good for the New Year and 80p.

[karldinnel] 19/12/2005 23:06

Well said Rivaldo (poor name by the way - unless you are a Brazilian footballer).

I can't understand why people keep complaining about the price. If you think it should go higher, then why not put your money where your gob is and top up. After all, the dividend yield is well in excess of 7% at these levels.

[rivaldo] 19/12/2005 20:35

Dogdogman (sorry, terrible name), do you ever post anything other than panicky one-liners?! You were panicking from 70p down to 63p and back up again, and now you're complaining about the spread, when in reality the last sell was at 67.4p and the last buy at 68.63p, which is actually a very good spread!

Please take a chill pill, calm down, take a look at the chart over the last 3 months and watch the price continue to increase. IMO anyway.

[dogdogman] 19/12/2005 14:46

What a ridiculous spread. This is bound to kill trading!

[rochdae] 19/12/2005 11:08

Bit of profit taking as we didn't break 70p. Wouldn't expect much of a drift down .. just enough for momentum for the next run up.

[dogdogman] 19/12/2005 11:03

What the hell is happening to the SP!!!?? Why we seeing a drift downwards again? Is this because it is now a SETTS stock or what?

[bigbobjoylove] 19/12/2005 08:38

remember now,article in business paper about an analyst write up on HWY,stated they had capacity to ramp up the divi and even pay a special.

[rochdae] 19/12/2005 08:35

Next leg up to 75?

[gswredland] 19/12/2005 08:17

thanks for your help guys.

[anth21] 18/12/2005 20:02

There were rumours about a 'special dividend' being paid in the near future. However, i understand the company have not confirmed whether this will be the case.

The company should be operating with significantly improved profits in 2006 making the dividend adequately covered and the possibility it could be increased quite swiftly.

[bigbobjoylove] 18/12/2005 16:02

the final div will make it a minimum of 5p for the year gswredland hence the excitement of a great yielding stock with growth thrown in for nowt.

[gswredland] 17/12/2005 21:31

Excuse my ignorance here but is there a special dividend being paid soon?

[hornets] 16/12/2005 18:52

I didn't expect 70p quite that quickly, hope everyone held their nerves a couple of weeks ago. Certainly easier to stay calm when there is a low p.e. and high yield to underpin the price, and most importantly the sudden drop wasn't caused by any bad news coming from the company.

[taylor20] 16/12/2005 15:35

Rochdae, Beat me to it!

[taylor20] 16/12/2005 15:34

Hornets - 15 Dec'05 - 23:16 - 96 of 96

excellent day, only matter of time until 70 again

...a matter of 24 hours in fact.

:-)

[rochdae] 16/12/2005 15:34

Well, that's 70 gone. Something must have gone down well at the EGM.

[hornets] 15/12/2005 23:16

excellent day, only matter of time until 70 again

[scotch broth] 15/12/2005 15:03

Highway is holding an EGM tomorrow 16 12 05.Is anyone going? There is unlikely to be a formal trading update but may be some obiter over a mince pie.We could do with a representative to attend and report back here.

[rivaldo] 15/12/2005 07:48

Agreed ursus - the motor insurance side is core, but the cautiously run investment side is what gives the upside from a low insurance P/E rating. Since a couple of months have passed from when Michael Walters first recommended HWY his opinion re an 80p share price might interest some and clarify further how HWY works:

"Thanks to some bright posters on our splendid bulletin board, I have been keeping half an eye on Highway Insurance (HWY) for a few weeks, watching it edge higher, wondering whether the double figure yield people were projecting could possibly make sense.

The good news is that it did. The bad news is that it is no longer available, since the shares have risen. But I guess many will be content to contemplate a prospective yield of 8.1% now the shares are trading at 61p to 62.5p. The payout looks assured for this year, probably for next, and could even exceed estimates if all goes well.

The signal loud and clear from any stock with such a high return is that the market worries it will not be sustained. Since no guarantees are ever possible in this business, we must take that into account. But there are clear signs that the market is still in the process of understanding how a rebuilt Highway works, so the shares are not fully reflecting the real value.

There is fair range of projections from the brokers who follow Highway, with Peel Hunt looking for £27.5m (earnings 9.3p) at the top, and Stephen Payne of Corporate Synergy probably at the lower end, projecting £23m (earnings 7.6p).

Reality probably lies somewhere in between, but all will have run their projections past the company, and all agree that profits are set to rise this year and that earnings will comfortably cover the projected dividend.

Highway is a motor insurer with a chequered career. Under new management, it has evolved over the past three years from Ockham Holdings which used to underwrite through syndicates at Lloyd's, simplifying and cleaning up the business in the process.

Now the underwriting is done through an FSA regulated company which avoids direct selling and works through intermediaries, who put their own brand name on it. It writes around £250m gross premium each year with about 600,000 customers.

Underwriting results have returned to normal after a couple of years of straightening out past problems, and at the June 30 half year showed a modest profit, with sufficient reserves and earlier claims being run off at a profit.

Executive chairman Ross Dunlop, an experienced industry player, reported in the interim that personal injury claims exceeded accident damage and motor business is tough. Highway has only 2.5% of the UK motor market and is committed to writing for profit rather than volume, so expects no premium growth this year. It is concentrating on niche areas, third party cover, older and younger drivers.

Average claims costs have been falling, and the company is earning commissions on referrals for accident repairs and replacement car hire. There is a novel deal with a law firm which yields a proportion of that firm's gross billings in return for personal injury referrals.

Alongside this, Highway is looking to acquire and consolidate insurance brokers, hoping to achieve 250,000 controlled policies and £5m profits by 2008. Today (Wednesday) it announced the acquisition for £6.6m cash of MRB Insurance Brokers, a Romford company which will add 60,000 policies to Highway Retail, giving it over 170,000 policies.

The broker operates from a call centre and generates business from advertising and the internet. In 2004 it handled gross premiums of £24.6m, generated brokerage income of £6.6m, and made pre-tax profits of £1m. There could be a deferred consideration, and £6.5m of cash and such in the business will be paid out to the vendors.

Insurance brokers tend to command a higher rating than insurance companies, and do not suffer from underwriting uncertainties, so achieving a £5m profit from that area would be a significant prop to Highway's value.

The financial motor of the company, however, lies in managing the £380m of investment funds held by the company as reserves against claims. Two Swiss banks were given a mandate to manage this in 2003, told to preserve capital while seeking to enhance cash returns to deliver a long-run assumed rate of 5.5% a year.

Two-thirds of the fund is invested in cash and relatively short term fixed interest securities. There is exposure to hedge funds across eighty funds on a fund of funds basis, with the largest individual exposure at 0.2% of the fund. There is a Euro-based equity portfolio and additional cover across a wide range of asset classes.

It appears to be conservatively managed, and in the first half of this year raised the return from 2.1% to 3%. The 2004 full-year return was 6.48%.

It is important to realise, however, that while this appears to be going well, it is central to the progress of Highway. It could be vulnerable to sharp moves in the fixed interest market, and to some degree the equity market.

Most comforting of all is the clear awareness of chairman Dunlop of the need to keep investors happy. Highway had a bid approach from Cox Insurance a couple of years back, and rejected it. Then there was an approach from Lloyd's based Chaucer. That, too, was rejected in April 2005. The share exchange offer at around 44p was felt to undervalue the business.

The board has gone on to present the business strategy clearly to shareholders, and Dunlop explained in the interim statement that there had been a deliberate choice not to use a higher payout to defend the Chaucer bid. With that out of the way, it was clear that the company would be generating funds for which it had no immediate use, and that these should be distributed to shareholders.

With an impressive sweep of logic which most would wish was apparent to a wider range of directors, he explained that since the company's fortunes had revived, so should shareholders participate. He promptly doubled the interim dividend to 1.6p, and promised a final of not less than 3.4p in March, barring unforeseen circumstances.

He warned that motor business would continue tough for a couple of years, but was confident the company could expand and progress through two difficult years.

Sounds good? Sure. And it sounds like a man who reckons he could be handling another bid approach in the next couple of years. He has a busy band of astute and aggressive institutional investors.

Among them are Christopher Mills, who is associated with fund manager J.O.Hambro, and the Fidelity fund management monster. They have been reducing their stakes since the interim results, probably because the rise in price had taken them above values allowed in their funds They are still substantial holders..

The institutional investors might have had a hand in interesting previous potential suitors. It is worth noting that Cox has been taken private by Duke Street, and now employs a former Highway chief executive.

Corporate Synergy projects pre-tax profits this year up from £21.4m to £23m with earnings of 7.6p, rising to £23.9m (earnings 8p) for 2006. This appears conservative, but still projects a cover of more than 1.5 times for a projected 5p total dividend, and contemplates a rise to 5.38p in the dividend for 2006.

This would give a yield of 8.1% for the current year, rising to 8.7% for
2006, with a price earnings ratio of 8.1 this year, and 7.7 next. Net asset value is £88m, and the market capitalisation £125m. The market in the shares is quite good – more than one million traded today (Wednesday).

Questions over the sustainability of progress are more than discounted by the high yield and low pe. It would be unwise to expect massive gains, but this is a share which could easily approach 80p over the next six months, provided there is no general market crash. Adding the yield to potential capital growth gives scope for a comfortable overall return in excess of 30%.

It is interesting to speculate – nothing more substantial – on the impact of recent sizeable stake reductions by big players. If they are finished, the price could respond nicely to any new buying.

In these markets, it is important mark the downside. So do run a stop loss if you buy into this one. Set it at, say, 50p or so, depending on your tolerance of risk. Trail it up behind the price if it rises."