More on Benfield
Benfield: trading statement
Reinsurance broker Benfield said that profits for the year 2005 would be in line with market expectations.
The company has continued to invest in infrastructure and people; both in its existing reinsurance intermediary business and in the development of a specialised intermediary business focused on the marine, energy and power sectors (formally launched as Benfield Corporate Risk in September 2005).
Costs are expected to rise by £20m as a result of increased spend on infrastructure and the cost base is projected to rise by around 6% over 2004.
The catastrophic storm season this year has resulted in the previously downward trend in reinsurance rates generally stabilising although the company notes that competition is still evident for certain non loss affected business. Despite substantial rate increases in loss affected areas and strong demand for reinsurance, the company complained that “buyers sought to manage costs as well as to secure the most appropriate reinsurance protection”.
The company is more optimistic in its outlook than before, although this optimism is relative:trading results for 2006 are only likely to reach the levels of 2004. Revenue is expected to grow by 20% next year and profits are likely to be “at least the £87.3m achieved in 2004”. Prospects for Benfield are undoubtedly improving and in the short run the stock should perform well. Longer term investors need to be mindful of the cyclical nature of the industry and the relatively weak position of insurance intermediaries in a market, squeezed on either side by both buyers and sellers.
The share trades at 356.5p, on a prospective PE (2006 earnings) of 18.5x, at the upper end of the sector with a yield of 3.2%.
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