Amlin - pregnant with dividends...for now

Amlin: Special dividends can be difficult to value, as by their nature they can be transient. However, it gets easier when there is a good yield, with the special dividend acting as the cherry on top. In Amlin's annual results to 31st December 2014, net written premium was up 8.1% at £2.3bn. The combined ratio deteriorated a bit from last year's 'peak' 86% to a still healthy 89%. Despite low bond yields, their exposure to property and equities saw a 2.7% return on investments, albeit down on the previous year's 3.6%. Pre-tax profits were £258.7m, down from £325.7m, with competition in reinsurance from new participants being an added headwind. Reserve releases were also lower. The net tangible assets came in at 304.1p per share, up 5.3% from last year's 288.7p. The return on equity was down from 19.8% to 14.1%, but still consistent with their across the cycle 15% target. On the back of these results the annual dividend was raised 3.8% to 27p, but there is also a relative rarity for Amlin in the form of the first special dividend since 2006, it being 15p. So at 507p, the underlying yield is 5.3%, but the all in 2014 yield is 8.3%.

Looking ahead the company notes that annual rate renewals are 3.6% down, with catastrophe rates down 8.3%. Given competitive markets they do not see much growth at present, but that does ease their capital requirements in the short run. In general the outlook is seen as 'more challenging', with rate softening hurting. The weightings to property and equities are being tweaked up, which should protect the investment income line. All in you are looking at a company where the eps line is cyclical in part and is past its current peak, whilst the shares trade at about 1.7x net tangible assets. The underlying dividend of 27p may nudge to 28p for a prospective yield of 5.5% and there is no mention, at least that I have seen, about another special dividend this year. So for pure yield the stock has attractions whilst pregnant with the special, but otherwise, after a great run in recent years, the shares feel well up with events as the cliche goes. (Neil Cumming^, 2^nd March 2015)

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