By Saxon East, content director
The City is an unforgiving place. By all accounts, Hastings history since it floated on the stock market just over three years ago has been a success.
Increasing profits, share price growth, healthy dividend payments – everything an investor likes.
Hastings chief executive Toby Van Der Meer took over leading the company earlier this year
Today the broking group revealed gross written premiums were up and live policies had increased 4% year as it closes in on three million customers - yet the share price tanked.
So what’s the problem?
What spooked investors was claims inflation being higher than premium inflation, with a loss ratio that may turn out worse than previously expected.
Even the slightest bit of bad news in the City hits company share prices because analysts have expectations around performance and the share price is accordingly based on these forecasts.
The concern now is that Hastings final year results may fall short of City expectations.
The sacred cow is the dividend. Hastings pays out between 50% and 60% of earnings to the dividend.
Hastings must protect the dividend at all costs, and despite the news, there is no indication they will fall short.
Growth slowing
Another factor to consider is that investors might believe Hastings growth will slow.
It’s grown very well up until now, piling on volume. Hastings is a beacon of light for motor brokers looking to grow in the UK.
It’s data, analytics, fraud-busting technology, customer profiling and trim-your-sails to the aggregator winds approach has won plaudits everywhere.
But it now has 7.5% of the market, how much more market share can it take? And despite all its expertise, it will have inevtiably swallowed some bad risks.
Futhermore, the City will be concerned the market as a whole is going through a rough time.
It’s notable that Hastings two closes rivals – Admiral and DLG – have been caught in the backwash today, with lower share prices.
In light of the rocked share price, perhaps Hastings should have called an analysts’ meeting to soothe concerns.
In conclusion, today’s results are a bump in the road rather than a crash. A correction rather than a catastrophe.
It remains a good company until proven otherwise.
Management will now be hoping the weather plays nice for the rest of the year and that what started as a bump doesn’t turn out to be something worse.
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