More on Benfield
Benfield: H1 2006 trading update
Reinsurance broker Benfield reported poor trading conditions in the first half of the year, not unexpected given that insurance volumes have fallen following the catastrophe losses of last year.
The impact of the huge losses last year has been to restrict underwriting capacity, hence the lower volumes. Benfield reported that ‘in loss-affected areas there has been a further retraction of capacity since January renewals’. In particular, reinsurance capacity for Florida risks has been severely curtailed and, according to Benfield, is insufficient to meet growing demand.
Capacity, outside loss-affected areas has been adequate and prices relatively stable.
The company says that it expects some revenue growth in 2006 and reiterated that the “2006 trading result is expected to amount to at least the £86.3m achieved in 2004”.
Insurance customers are increasingly trying to avoid brokers in order to reduce costs – meaning that Benfield faces diminishing volumes and margins.
There appears to be little in the way of growth prospects in the short term, despite a recovery in the insurance markets. We have examined the problems faced by the company more fully here.
The share trades at 344p, on a prospective PE (2007 earnings) of 13.9x, much cheaper than when we last looked at it but still at the higher end of the sector range. The yield is 4.5%.
Random picks: BG | Berkeley | Carphone Warehouse | Cobham | Corus | Kingfisher | Marconi | Sainsbury | Thus | WH Smith