Saturday, 23 June 2012

FTSE 250: Amlin

What is it?

Amlin is an insurance company specialising in commercial insurance and reinsurance globally. It has a market capitalisation of around GBP1.7bln. In 2009 is acquired Fortis Corporate Insurance. Recently it has been struggling with 2011 being a particularly bad year with the Fukushima earthquake in Japan and the floods in Bangkok, Thailand. Clearly it's in a risky business but is the current price and dividend attractive to make it a good investment (after all everything has a fair value).

Should I invest in it?

Deutsche Bank recently upgraded Amlin to a buy with a target of 435p a share (25% above the current price of 346p). The fundamentals look positive too. The dividend yield is currently just over 6.6% and has risen from 15p a share in 2007 to 23p last year. Forecasts for 2012 are 23.95p and over 26p for 2013, giving an annualised growth rate of over 6%.

Valuation: The 3 year average dividend yield is 6.36% and taking a conservative 33% of the future expected growth rate on the dividend yield gives us 2.10%. As the dividend yield is currently high we don't need to use an adjustment rate. This gives us a total expected return of 8.46% a year.

The chart this year looks stable. In January and February the 100 day high was broken and the recent weak market the 100 day low as acted as good support keeping the current price trend positive.

Looking at the longer price chart above you can see the price has performed well. Problems in 2011 with the earthquake and floods caused a severe adjustment but this could present a good time to invest.

In the last 12 months the directors have been buying modest amounts totalling around GBP100,000. Admittedly not a significant amount but their has been no reported selling in the last 12 months so the directors seem reasonably confident in the business.

It's clearly a risky investment as it's in the business of risk but at the current price levels it looks a good value share.

No comments:

Post a Comment