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Benfield:Trading statement
Benfield, the reinsurance intermediary, issued a gloomy trading update for 2005 warning that the company expects a lower trading result than in 2004.
Benfield has been sacrificing margins to capture market share, a rather aggressive strategy given the weaker trading environment. The company says that reported revenue will be lower than last year due to exchange losses. The company does not anticipate “significant additional revenue generation until 2006 and 2007″. Revenues in America (which accounted for 66% of last years trading result) have been affected by investigations into the insurance industry.
Costs, however, are rising. An organic increase of around 6% in underlying costs, as well as actual and anticipated recruitment costs are expected to add around £12m to total expenses or around 10% to last years net operating expenses of £117m.
There is little good news in the trading statement, with declining revenues and increasing costs being expected this year. With no significant growth in revenue expected until 2006 and 2007, prudent investors would want to judge the effectiveness of the new strategy in delivering profits before plunging in.
The share trades at 250p on a prospective PE of 11.7x (2006 earnings) with a yield of 4.6%.
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