The Investment ColumnBrokers miss the party
Saturday 11 January 1997
The reasons for this dismal performance are not hard to find. Normally a highly cyclical industry, insurance rates have been weakening almost continuously since the early 1990s. But whereas in a normal cycle weaker players would eventually be driven out, there has been less evidence of capacity cuts this time and the outlook is for soft rates to continue for the foreseeable future.
It was therefore with considerable relief that the market heard the news last month that Lloyd Thompson and JIB, two of the largest second-line brokers, had agreed to merge to create Jardine Lloyd Thompson. Expectations that that would be part of a consolidation trend appeared to be confirmed yesterday when two of the smaller players, Lowndes Lambert and Fenchurch, were forced to admit they were in merger talks after the latter's shares started to move earlier this week. Fenchurch, which traded at 49p at the beginning of the week, added a further 8.5p to 66.5p, while Lowndes put on 7p to 110p on the news.
Any merger is likely to be defensive, given that growth is more likely to come from cost-cutting and market share gains than any expansion of the top line. Tony Silverman, insurance analyst at NatWest Securities, expects market growth to be in the low single-digit per cent over the next few years. He estimates there could be scope to shave at least 5 per cent from the combined costs of the two brokers, put at around pounds 115m.
Beyond that, though, Fenchurch also looks in need of Lowndes' management skills. Revenue and operating profits have grown sluggishly since 1991 and last year was torrid, with a profits warning and the defection of a team of South American specialists in February followed by a halved final dividend and the loss of a chunk of business in the autumn.
The logic behind the JLT merger looks more soundly based. Lloyd Thompson's highly successful London market-based business should fit nicely with Jardine's extensive foreign network and its strong links with the Far East, one of the few insurance markets still showing reasonable growth.
JLT, when it finally emerges, should be a reasonable bet for the long term, but punters hoping to catch the next wave of consolidation could take a look at Nelson Hurst, a group with the sort of international coverage that might attract a bid from a more London-orientated broker. Mr Silverman also points to the potential for slimming down overheads at CE Heath, where costs have been traditionally higher than average. The shares, unchanged at 96p, stand on a forward rating of under 8. But the overall sector is likely to continue to be dull, particularly in view of the impact of the higher pound on overseas earnings.
- 1 Man on naked bike ride gets ejected after becoming aroused
- 2 Charles Kennedy 1959-2015: A gifted, compassionate politician whose career was cut short by the 'demon drink' - latest news
- 3 Ann Summers survey reveals the UK's favourite sex position
- 4 Jaden Smith wears gender fluid dress to high school prom with Hunger Games actress
- 5 How much sex should I be having?
Ed Miliband returns to the backbenches but it's all a bit awkward as he tries to avoid eye-contact with fellow Labour MPs
Man on naked bike ride gets ejected after becoming aroused
Charles Kennedy 1959-2015: A gifted, compassionate politician whose career was cut short by the 'demon drink' - latest news
Ayyan Ali: Pakistan's top model now appears in the courtroom rather than on the catwalk
Isis tortures 14-year-old Syrian boy and films it in graphic video for 'propaganda purposes'
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination
Migrants in Kos: Photos show real tragedy after Brits abroad complain of 'awkward' holidays
British tourists complain that impoverished boat migrants are making holidays 'awkward' in Kos
Michael Gove determined to scrap the Human Rights Act – even if Scotland retains it
Threat to scrap Human Rights Act could see UK follow Nazi example, warns UN official
Why this year's general election was the most unfair in Britain's history
iJobs Money & Business
£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...
£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...
£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...
£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...