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Buy Hastings Group Holdings #HSTG says VectorVest. Strong interim results and improved fundamentals provide platform for further growth
Founded in 1996 in Bexhill-on-Sea on the Sussex coast, Hastings Group (HSTG.L) is one of the fastest growing general insurance providers to the UK market, with 2.7m live customer policies and employing over 3,400 colleagues at sites in Bexhill, Leicester, Gibraltar and London. The group, which also trades via ‘Hastings Premier’, ‘Hastings Essential’, ‘Hastings Direct SmartMiles’, ‘People’s Choice’ and ‘insurePink’, provides straightforward products and services to UK car, bike, van and home insurance customers with around 90% of policies directly underwritten by its Gibraltar based insurer, Advantage Insurance Company Limited. The Group operates as an integrated insurance provider with two businesses. The Group’s Retail business, Hastings Insurance Services Limited, is responsible for the end customer pricing, fraud management, product design, distribution and management of the underlying customer relationships. The Group’s Underwriting business, Advantage Insurance Company Limited, engages in risk selection, underlying technical pricing, reserving and claims handling.
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On August 8th 2018, HSTG published interim results for the six months ended 30 June 2018. HSTG reported a 9% increase in net revenue to £376.3m, with strong growth in adjusted operating profit, up 22% to £105.1m after including £14.6m of prior year VAT recovery and a £7m impact from adverse weather in Q1. HSTG reported sustained growth (up 6%) of live customer policies to 2.7m, which resulted in an increase in share of the UK private car insurance market to 7.5% from 7% previously. Significantly the group also reported a strong solvency position, with a Solvency II coverage ratio of 171%, up from 167% at 31 Dec 2017, a significant increase in free cash generated, up £42.0m to £107.8m for the period and a 10% increase in the interim dividend to 4.5p per share. CEO Toby van der Meer said the group’s strong financial position and continuing cash generation “means we remain on track to meet all our 2019 targets and I would like to thank my 3,400 colleagues for what they do for our customers and each other, every day. It is their hard work, passion and commitment that has achieved a set of results that we can all be proud of.”
VectorVest metrics flagged up the progress of this stock to members as the key RT (Relative Timing) metric ticked up over 1 in early May 2018. The HSTG share price and RT metric fell back from that point and bottomed out at year lows around 229p in July, but subsequently both share price and RT metric moved sharply higher. Today, the HSTG RT metric, (a fast, smart indicator of a stock price trend) logs the stock at 1.29 – very good on a scale of 0.00 to 2.00, but the RV (Relative Value) metric, (an indicator of long-term price appreciation potential) logs HSTG as excellent at 1.42 (also on a scale of 0.00 to 2.00). The stock continues to register an excellent GRT (Earnings Growth Rate) rating of 20%, but still offers considerable scope for further upside trading at 270p against a current VectorVest valuation of 367p.
A weekly chart of Hastings is shown above. After a strong upmove the share retraced to 78% of that move. The latter is a support level used by Fibonacci orientated traders. From this level after a two-month period of accumulation the share price has advanced and is currently on a VectorVest Buy signal. The major reverse divergence also known as a “slingshot” between the price and the MACD indicator is very positive for a further upside move when the mood of the overall market improves.
Summary: Motor and general insurance is an incredibly competitive and fast-moving industry, where market leaders have to continually evolve, while at the same time retaining careful cost controls. With its broad product portfolio, HSTG is arguably one of the finest exponents of this particular art, as demonstrated by the strong set of interim results. Of particular note is the strong solvency position and free cash generation, essential components for growth, that no doubt give the group CEO his clearly stated confidence in the full year outcome. Given the disparity between the current share price and target, supported by a bullish chart, VectorVest recommends the shares as a buy.
Dr David Paul
September 5th 2018
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