Quality building rapidly

The core strategy to build two complementary divisions and income streams looks well on track. A strong first half was driven by Legacy deals - announced in FY18, which obtained final approval in H1 - and a £16.0m boost from investment income (FY18: £5.0m). That is a reminder that Legacy transactions can be very profitable, but their timing unpredictable. We believe that makes recent rapid growth in Program Management especially important. 

Program Management’s strong recent growth has built estimated future gross written premiums to approaching $800m pa from contracts secured to date. That effectively creates high-quality regular commission income, which will attain full to speed over the next 12-18 months. That represents a steady, growing revenue base and outlook. 

Headline figures make good reading although specific Legacy deals are one-off boosts, so not an indication for H2. PBT was £33.1m (H1 18 continuing: £7.8m) and basic EPS 19.2p (H1 18 continuing: 3.6p). There was a 13% increase in NTA/share to 133.2p (H1 18: 117.6p) and a 12.5% return on tangible equity (H1 18: 6.8%).

We have marginally increased our FY19e forecast for better than expected investment returns, although assume an H2 contribution of c £4m. Completion of Legacy deals is also inherently tricky to predict. FY19e includes the $25m acquisition of Sandell Re, which should receive approval from the Bermuda regulator in H2. Previous acquisitions have been delayed, notably the US$80.5m Global Re deal, announced in Sep 2018, which received approval from the New York regulator in May 2019. 

The Legacy division completed five new acquisitions and three reinsurances in H1. The Program Management division launched ten new contracts in the USA and Europe. Both divisions report strong new business pipelines.    

The proposed interim distribution 3.8p/share (H1 2018: 3.6p) paid from capital, so tax-free to UK private investors; a prospective 5.7% yield based on 9.5p/share payment.