Amlin - Limited excitement, but an attractive yield

AML (AML.L): What a day to wheel out results, with markets in turmoil. Still, corporate life goes on and here are Amlin’s interim results, to 30^th June 2015. These have been distorted by a change in how they account “for the seasonality of catastrophe earned premium, [which] will unwind in the second half.” This suppressed net earned premium and increased the combine ratio by 2%. So as stated in the announcement, the return on capital employed was 14.8% annualized, in line with the group’s 15% across the cycle target. Gross written premium was up 6.2%, but there was an average rate decrease of 4.0% and net earned premium decreased by 7.5%. The combined ratio was 91%, up from 87% this time last year, due to the transient higher expense ratio on those reduced net premiums. The investment return was 2.2%, nicely up on the 1.3% reported 12 months ago, helped by increased returns from equities and property. Reserve releases, on the back of benign claims, were up from £40.1m to £48.3m. So, pre-tax profits were down 3.5% at £143.3m, eps were down 2.9% at 26.5p and the interim dividend was raised by 3.7% to 8.4p. The net tangible assets came in at 284.4p, down 1.1% on a year ago.

Looking ahead, the group says that it is on course to meet Solvency II requirements, in an industry where rapidly changing markets are awash with capital. All this makes for a challenging environment for Amlin, but they are adapting (e.g. by writing multi-year business) and are confident of continued success. In the second half they do not expect investment returns to be repeated, but that accounting change will unwind. Consensus eps for FY2015 are 41.2p, so at today’s 488p (down 12p in a soggy market), the PE is 11.8x. A 4% rise in the full year dividend would take the total to 28p, for a juicy yield of 5.7%. (I am assuming that last year’s rarity of a special dividend is not repeated.) The price to net tangible assets is 1.7x. Back in March, I felt that the shares, at 507p, were worth it in order to scoop the final and special dividends totaling 33.9p. So having paid out the dividends and out-paced the FTSE All Share since then, there does not seem much excitement left. Yet, that yield is difficult to ignore and further stock market turmoil may well give rise to a chance to get involved again. (Neil Cumming^, 24^th August 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower