Hiscox Ltd (LON:HSX) has been upgraded by Peel Hunt despite a potential high court ruling that could force insurers to be liable for losses suffered by businesses due to the coronavirus pandemic lockdown.
Moreover, the underwriter last week warned that it might have to carry out a pre-emptive fundraise to cope with the uncertainty caused by the coronavirus pandemic.
With the shares having fallen back to trade at 1.2 times tangible net asset value post-rights they “look attractive” to the analysts, who added that at those levels “it may be worth taking any debate around capital off the table by raising equity pre-emptively”.
A US$500mln capital raise “may make sense”, the analysts said in a note to clients on Tuesday, as it would create a larger capital buffer ahead of the hurricane season and allow the FTSE 250 company to benefit from a hardening of rates in 2021.
“Any excess capital can be returned should 2020 losses turn out to be manageable.”
Alongside a central Covid-19 loss scenario of US$275mln and an equity issue of the above size, Peel Hunt’s 2020 adjusted earnings per share forecast moves to a 15.8 cents loss, with adjusted EPS for 2021 and 2022 cut 14% and 8% respectively.
The stock, which was upgraded to ‘add’ from ‘reduce’, is trading below the broker’s post-rights target price of 725p, which was cut from 800p pre-rights, where it is seen as now cheaper than peers on pre- and post-rights basis.
Hiscox and peers are awaiting a ruling after disputes over whether insurers should pay up over business interruption insurance claims forced the Financial Conduct Authority to ask the High Court to make a judgement one way or the other.
Published at Tue, 05 May 2020 11:09:00 +0000-Hiscox upgraded by Peel Hunt as sees pre-emptive fundraise as good idea