Broker snap: Brit bid should boost sector valuations

The bid approach for insurance underwriter Britshould highlight how undervalued the sector is, KBC Peel Hunt reckons.Reports indicate that the indicative offer for Brit was £10 a share, a price which, in KBC's view, comfortably undervalues the company."Our valuation approach suggest fair value could be £10.75, which at a 3% discount to prospective NTA [net tangible assets] would be a more palatable take-out multiple," KBC analyst Christian Stobbs."Clearly if we see a resumption of predatory interest in the sector it should be positive for valuations even if the deal/deals do not end up being consummated. Though there is no certainty that any revised offers will be made for Brit, its current 32% discount to prospective NTA clearly makes for an attractive investment opportunity in terms of the potential financial engineering benefits. With this in mind, it is interesting to note that wide discounts exist elsewhere in the sector, at Chaucer (0.75x NTA) and Novae (0.68x NTA)," Stobbs observes.