The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
Rock on Amanda!
Squash, Canada & RoI have combined populations of ~43m (~64% the size of the UK) so you shouldn't simply discount them. The population of Australia is ~68% the size of Canada and its second largest insurer (SunCorp) is currently worth ~£7.5bn. AV is the second largest insurer in Canada (which has large agricultural, manufacturing & mining sectors), so it's conceivable that, on a pro-rata basis, AV's business in Canada could potentially be worth ~£11bn, all other factors being equal! Hardly small fry.
It goes without saying, given that the whole of AV has a current market valuation of ~£12.5bn there is significant upside to the potential valuation of AV.
Squash, Be realistic. What was AV going to buy with £5bn? Given it's dominant market positions in the UK, RoI & Canada it was hardly going to be permitted to acquire other insurance rivals in those markets. The CMA are already crawling all over their proposed £0.5bn acquisition of AIG's UK protection business!
The fact is that short of buying another overseas insurance business, in which event AV would likely have had to spend more than £5bn to acquire a top 1/2 insurer in another major insurance market (consistent with its aim to be one of the top two insurers in the markets it serves) plus, since the Brexit referendum, £5bn doesn't go as far as it once did. For example, if AV had wanted to acquire one of the top two insurers in (say) Australia, namely QBE and Suncorp, it would probably have had to spend in excess of £10.5bn and £7.5bn respectively, before any divestments.
Not only that, I'm not sure AV's shareholders would have had the stomach for such a large overseas foray so soon after divesting most of its overseas businesses and increasing the size of the group by c30-40% in the process, particularly when you consider that there would probably have been limited cost savings and/or economies of scale from acquiring such well established market leaders. AV had already tried buying smaller overseas insurers and growing them organically, and look how that worked out (a real mish-mash).
AV's options were/are limited and Blanc now intends to grow the business going forward by buying and assimilating small, capital-light, bolt-on acquistions (generally less than £1bn), which can be funded out of its existing cash resources without having £5bn of cash just sitting on the balance sheet looking for a home. Personally, I think that's a recipe for disaster; you either become fixated on finding the "one" and often becoming increasingly desperate to do a deal at any cost as time goes by or splurge on a bunch of ad-hoc acquisitions all at once, often (at your investment banker's suggestion) outside your field of expertise (what do they care as long as they rake in the fees) and desperately try to assimilate them and squeeze out the projected cash savings (that never quite materialise).
Far better to return the excess capital to shareholders now and return to the market to raise additional capital at a later date if a, too good to miss, investment opportunity arises (at which time the shareholders get the chance to run the rule over the acquisition too). Excess cash sitting on the balance sheet looking for an investment rarely ends well in my experience. Make the investment bankers work for their corn; let them convince you that the investment is worth your while raising capital for rather them "doing you a favour" and digging you out of that hole of shareholder expectation as time elapses.
Bromtree, All of the insurers are putting up their premiums at the moment. DLG is not alone albeit that some of its policies have risen more in relative terms because they were lower to start with following the FY22 debacle. It's been my experience that although insurers are less inclined to match competing quotes on similar terms, they do tend to be more competitive for new customers (dual pricing still seems to be alive and well to some extent) and as one customer leaves another comes through the fornt door.
Comparing my family's various insurance policies this year with last, I find that I still have 50% of our policies underwritten by DLG directly/indirectly. Last year we had policies with Admiral, Churchill, Sainsbury's (underwritten by UK Insurance Ltd which is owned by DLG) and Tesco whilst this year we have policies with Admiral, Hastings Direct, Privelege (owned by DLG) and Sainsbury's.
It's not necessarily all doom and gloom.
Guitarsolo, Penny James didn't "forget" to get re-insurance cover. DLG did in fact have re-insurance; it just didn't have as much as it might. It was a deliberate executive decision to have less re-insurance because re-insuring reduces DLG's profit upside when claims are below average. However, likewise, not re-insuring increases DLG's profit (or indeed loss) downside when claims are above average.
Unfortunately, once the decision had been made, DLG was, more or less, wedded to it for the "season"; it's not a policy that you can simply change "mid-stream" when you realise that claims are likely to be above average, without incurring a much higher re-insurance premium (which would, more or less, offset any benefit).
It was, essentially, a gamble that backfired in an attempt to continue to bolster DLG's bottom line (and maintain its already stretched dividend) to make up for other operational deficiencies that had built up over a period of years. I think DLG may have had operational issues for a number of years that it had failed to address and had been "covering them up" by taking more risks than it should. FY22 was simply the culmination of passed failings and DLG's inability to leverage its household brands.
Penny James may have taken the fall but, as I said in my previous post, I think there were collective failings in the executive team (some, or all, of whom James "inherited" when she became CEO) and I'm not sure whether the failings/weaknesses of some, or all, of those executives have yet been fully addressed. I wouldn't be too surprised to see Winslow looking to clear out some of the executive team in due course.
CVB123, DLG's recovery is still fragile and Adam Winslow needs to stamp his authority from the get go. If a final dividend is to be paid for FY23 then I think it would be better if DLG does not pay out more than (say) 40% of its FY23 profit (excluding any profit arising from the sale of its brokered commericial insurance business).
Winslow needs to set out how he plans to run the business going forward and DLG's (new) dividend policy. He should not overly concern himself with Ageas's possible offer; it seems fairly clear that the majority of DLG's existing shareholders support the BoD's decision to reject Ageas's original approach back in January. The ball is now firmly in Ageas's court to come back with a better offer that the BoD can recommend to shareholders (both the offer price and the cash element need to be markedly improved) or walk away.
The (so-called) bid is opportunistic. It'll probably take DLG another 12 months to get the business fully back on track and, in the meantime, it can't afford to throw money at shareholders just to try to stave off a potential (hostile) bid; it can however continue to set out its path to recovery and give shareholders a heads up on what they might reasonably expect in the next 12-24 months.
Shareholders should bear in mind that DLG has to some extent de-risked since FY22 (it now re-insures more of its potential weather-related risks) and if it keeps control of its manageable costs, keeps an eye on its inflationary inputs, and continues to price its average premiums in the middle-ground (it needs to avoid being too clever and becoming a bottom-end outlier like it did in FY22) then its potential profits over the next 12-24 months should be more predictable (de-risking should have reduced the probability of exceptional profits and losses).
Although not always appreciated by the markets, I'd like Winslow to be cut from the same cloth as Amanda Blanc; solid and (generally) reliable. That doesn't mean that Winslow (or indeed Blanc) will be incapable of mis-steps (best laid plans can always go awry) but I'd like him to be disciplined, better understand the strengths and waeknesses of his executive team, and only take calculated risks.
Penny James eventually fell on her sword following the debacle in FY22 but I can't help but think that some of the problems in FY22 were the result of the collective failings of some, or all, of her executive team and it may be time for a new broom to start clearing house.
Not to go over old ground again but the UK stockmarket has been our of favour since Brexit; I'm afraid Boris doesn't win any plaudits either (regardless of what he said, the UK stockmarket still declined).
Personally, I think it's a combination of the 2008 banking crisis and the subsequent new solvency rules (which has seen pension funds moving increasingly into bonds) and Brexit (however you like to cut it, the City's "domain" has been reduced by Brexit and it's longer the destination for companies that want to trade in the EU). The EU bourses have made inroads into the City's territory and although the impact may not be as significant as once might have been feared, has still none the less helped to undermine the City. You could also perhaps throw the ongoing demise of the Hong Kong stock exchange into the mix too; given the historic ties between London and Hong Kong, and the continuing shift to Shanghai, London is not quite the international centre it once was.
However, at the end of the day, if British private investors continue to chase their rainbows in the US etc. then it becomes an increasingly uphill battle and I think it's about time that the government removed the tax-free incentive to invest offshore via ISAs (personally I'd stop any new overseas investments being made in existing ISAs and, perhaps, introduce transitional rules to force ISA holders to divest of their existing overseas holdings at some point in the next, say, ten years). UK PIs might not like it at first but if money is re-redirected from (say) the US market into the UK market then we should start to see some recovery in UK equities (the price rises in the US are, in part, being driven by cash rather than fundamentals). At the end of the day, if UK investors choose to forego ISAs, in preference to ordinary share trading accounts, going forward then the tax generated can be used to pay down the National Debt.
Re-read the tender offer. You're reading it as if you can have your cake an eat it; you can't. You have to waive all, or part, of your dividend entitlement to receive the tender offer. If everybody waived their dividends in lieu of the tender offer, then it would cost DEC c$44.1m (105% * $42m).
DavidCharles,
I suggest that you re-read the Tender Offer. You have to waive all or part of your dividends on your existing shares (your "Entitlement") if you wish DEC to repurchase some of your shares at the tender price whereas, if I'm not mistaken, you appear to be assuming that you will receive the dividend on the shares that you don't tender.
So, in your example, Ivor would be entitled to £691.70 (before tax) on the shares held in his ordinary trading account and, assuming that the "average market value per share" was £10, then he'd be able to tender a maximum of 69 shares in his ordinary share account, in which event he'd receive £724.50 (69 x £10.50) for his tendered shares plus the balance of his dividend entitlement i.e. £1.19 (70% * £1.70). Therefore, in principle, Ivor ought to be able to re-purchase 72 shares in the market thereafter, ignoring dealing costs and assuming the share price remains at, or around, £10.
The modern rendering of Canute is clearly not accepted; no slight was intended.
mjallen, i wish you luck with getting £3.34 per share but i think you are defying reality (even king **** couldn't make the tide heed his commands). i think it's fair to say that you are probably within the 10% quartile (possibly the 1% quartile) at the far extreme of the bell curve. ageas probably don't have to worry too much about getting your vote; they only need 90% of the votes cast to make any deal unconditional and compel you to sell up your shares regardless.
No. 50% of the votes would only give them the right to pass ordinary resolutions. They'd need at least 75% of the votes to be able to pass special resolutions and de-list the company, and over need 90% of the votes to make the takeover offer unconditional.
What a load of blather. If you're going to de-ramp, at least put some thought into it.
A bid will be made. Ageas is now too committed not to make a bid; not only in regards to the shares it's already bought but the share positions it's underwriting (third party investors/advisors working in conjuction with Ageas aren't doing so out of the goodness of their hearts). Without a successful conclusion, Ageas could be facing the prospect of losing c£100-£200m if no deal materialises and it's forcred to sell off its current positions. Even if no deal is concluded, it would appear likely that Ageas will remain in the background propping up the share price where it can.
Whether that bid price will be enough to get a deal over the line remains to be seen but by then the FY23 results will be out and we'll have a far better idea of what we can expect for FY24 and beyond. Indeed, in the face of a potential hostile bid, the prospect of DLG re-instating the dividend in FY23 becomes even more likely (even if it doesn't quite meet it's own criteria); that would be for the new CEO to decide.
So why the large fall yesterday?
Because the fat lady hasn't sung yet and averaging down just covers up your past losses (averaging down simply increases my exposure/risk - it's never a dead cert). I'm not willing to accept £2.33 and Ageas hasn't made a formal offer; the wheels could still fall off and I'm not inclined to invest more into a company that has yet to re-instate its dividend (I didn't sell off because I thought/hoped it would recover but I didn't buy more because it didn't meet my criteria for investing more).
Obviously, if I'd known about the bid rumour before it became general knowledge yesterday then maybe I would have innvested more but once it was out of the bag and the reasons for the sudden share price movement in the middle of the day became known the "upside" had more or less evaporated.
Also, the more shares Ageas now owns/controls, the less likely it becomes that Ageas will increase the "offer" if it does now make a bid and, conversely, the less likely the bid might be accepted by the remaining shareholders who are holding out for more. The more Ageas now owns/controls the less it will probably have to increase the bid to get a deal over the line IMHO (Ageas has already shifted the Bell curve) and, arguably, today's share price movements bears that out; if investors thought that Ageas was going to have to materially increase it's initial bid to get the deal done then the share price would probably have continued to rise beyond £2.33.
I hope I'm wrong but a bid of c£2.50 looks more likely to succeed now than it might have first appeared yesterday (Ageas already appears to have taken out quite a lot of the potential opposition). We'll have to wait and see.
Who isn't acting in concert with Ageas? Unless I'm misreading the RNSs over a dozen financial institutions appear to be acting in conjunction with Ageas (the only financial institution not in on the action would appear to be Citigroup, which probably explains their shirty broker's note) and they can't all have bought in yesterday. It would suggest that since the end of January, Ageas, in conjunction with it's backers/advisors, have acquired close to 30%!
You overlook the fact that the sp fell over 1.5p yesterday; the fact that we're only down 0.7p today as I post is cold comfort.
Mjallen, I too would crystallise a loss at below £3 per share but I'm realistic enough to accpet that Ageas are highly unlikely to pay over £3 per share (even if there was a bidding war) and that, without a potential offer, it could take several years for the DLG share price to recover to (say) c£2.50 even if the dividend was partially re-instated in FY23 or FY24 (the prospective, sustainable profits going forward are invariably going to be less than before due ot the sale of the commercial business and the prospective dividend going forward is going to be reduced accordingly). I'm not suggesting that we should accept £2.33 but an offer north of £2.50 could become compelling. Personally, I'd definitely accept £3 if that was on offer albeit that I'd be sad to see DLG lose its independence (unfortunately FY22 has helped to put DLG on the chopping block).
What you paid in the past is now irrelevant; you have to judge any offer based on DLG's post FY22 prospects. It's pre-FY22 prospects were different but that's now history I'm afraid.
I think 364p is an unrealistic expectation. You can't simply ignore the impact of FY22 and its consequences; namely the sale of the brokered commercial insurance buisness. The sale will have a long term impact on DLG's future profits and potential dividend payments.
Although it's reasonable to assume that DLG's car and home insurance businesses can return to profitability in FY24, if not before, it seems wholly unrealistic to expect the share price to recover above £3 in the short/medium term IMHO. You've also got to factor in that for DLG's share price to recover above £3 then it would probably now have either seize (and retain) a much larger share of the UK car and home insurance market or expand ist services abroad (both are unlikely). Rebuilding its commercial insurance business from scratch would be a long term task and likely to generate losses before it attained the critical mass needed.
You are therefore left with a "bird in the hand or two in the bush" scenario i.e. either accept an offer from Ageas now of (say) £2.50-£2.75 or hold out for £3+ at some point in the future that may never come.
There appears to be a concert party breaking cover (today's RNS) and yesterday's Bloomberg article would appear to have been deliberately orchestrated. It would seem more than likely that Ageas will now make a formal offer (since approaching the BoD in late January it would appear that Ageas and its confederates have been building up share positions to ward off any potential counter offer)