The Investment Column: Hiscox a safe long-term bet as profits hit record

Hiscox; WH Ireland Group


Our view: Hold for now

Share price: 224.5p (+5.5p)

The insurance group Hiscox is clearly better than most people think it is. The firm, which specialises in a range of markets, including fine art and kidnapping, posted consensus-busting first-half numbers yesterday, saying that its regional speciality businesses had outperformed.

True, and with pre-tax profits hitting a record £109m, the group has done better than most of its rivals in the last six months. However, the stock has been dragged down, argues chief executive Bronek Masojada, as the insurance sector as a whole has been caught in the mire of the wider financial services sector. In fact, Hiscox offers very good value for money, he suggests, and with the dividend up 6.5 per cent, investors should pile in.

Among analysts, however, there is not universal agreement with Mr Masojada's opinion. Those at Cazenove argue that Hiscox is already fairly valued, pointing out that "the stock is trading on 0.9 times [estimated] 2007 tangible net asset value versus 0.9 times for the sector, generating a return on equity of 15 per cent versus the sector on 16 per cent. In price-earnings ratio terms, the stock is trading on 6.7 times [estimated] 2007 earnings per share versus a sector average of 6.2 times."

Those at UBS, the house broker, and KBC Peel Hunt disagree, saying there is still upside in the stock – a quick 10 per cent is possible, says KBC.

In fairness, the shares have done well recently and are up about 10 per cent in the last month despite being down on this time last year. However, as the stock managed a modest climb of just 2.5 per cent yesterday, on what were very good numbers, it would appear that most in the market believe that investors will make little in the short term.

Investors should see Hiscox as a safe buy, even if they are not going to make huge returns in the next few months, especially as the second half of the year coincides with the potentially hugely expensive hurricane season. A longer-term punt, however, could prove to be profitable. Hold for now.



WH Ireland Group

Our view: Sell

Share price: 99p (-2.5p)

Despite all the bad news about the financial services industry, savvy investors will know all too well that there will be a time, when they reach their nadir, to buy the likes of Bradford & Bingley and Royal Bank of Scotland shares.

Sadly, now is not that time, if the Manchester-based brokerage WH Ireland is anything to go by. The firm's interim numbers published yesterday showed that the group made a £685,000 loss in the six months to the end of May, after posting a £3.8m profit in the same period last year.

Investors will also note that the group has cut its interim dividend from 2p to 1p, although its chief executive, Laurie Beevers, says this is "prudent" given the conditions of the wider market.

Mr Beevers reckons that there is scope for an improvement in the share price in the autumn, largely due to it being under-valued. He also believes that next spring could mark the start of the whole market's rival. Many investors will be hoping that he is right, but will take note that he also says that the two months since the end of May have been dreadful.

WH Ireland is a well run group that follows its own dependable model and is undervalued, as evidenced by the number of potential suitors interested in buying it over the last 18 months. However, as a brokerage group, it is dependant on the financial markets, which the group itself says, at least in the short term, are pretty dire. Sell.



Infrastructure India

Our view: Buy

Share price: 93.5p (unchanged)

There is not a listed company in the land that is not making a huge hullabaloo about its business or investments in India, if it has any, often to try to get the focus away from whatever it is up to in the UK.

Infrastructure India, an investment group that works entirely in the country and that only listed in June, issued its maiden trading update yesterday, saying that everything was fine and also that it has put money into two projects: a hydroelectric plant and a toll road.

Investors that like to take comfort from having lots of numbers to pore over will be disappointed: not even the analysts at house broker Kaupthing have a share price prediction.

Instead, they stress that the value is based on the individuals in charge including Gary Neville, who was on the board of PFI group John Laing, which was sold to Henderson for just over £1bn in 2006.

Indeed, that is the plan for Infrastructure India. Before too long, it will be back to the market for more money and it will also raise debt.

The money is earmarked for more energy and transport projects where contractors are encouraged to take on equity in the enterprise, mitigating the company's risk. After that, expect to hear news of a sale.

A punt now would be a risk for investors, but if the group's plans come off, and it is subsequently taken private, today's buyers could do very nicely. Buy.

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