Broker snap: Beazley offer undervalues Hardy

18th Oct 2010 13:17

Back on 21 September FinnCap identified Hardy Underwriting as a potential takeover candidate in the wake of the buy-out of insurer Brit Insurer by private equity, and its prediction has been vindicated by news that Hardy recently rejected 300p per share offer from the insurance group Beazley.FinnCap has said that Hardy Underwriting, the specialist insurer operating within Lloyd's of London, has been trading as much as 20% below forecast net tangible assets recently. The Beazley indicative offer represents a significant premium to the recent 230-250p trading range. However, analyst Charles Coyne argues that this clearly undervalues Hardy's long standing attributes.Coyne states that Beazley is "striking at an extreme low point in Hardy's fortunes, a year where it has taken unprecedented losses and its share rating has suffered."Although Hardy's growth has slowed in response to poor pricing, Coyne sees the "heady transformation of the group in recent years continues with the recent opening of a Singapore office", announced earlier this month. The new office seeks to strengthen its Asian credentials focusing attention on the company's diversification into more of a composite underwriter.The broker sees Hardy's 270p net asset value for 2010 as a reference point. "In view of Hardy's historical ability to exceed cost of equity a more appropriate premium may be 1.3 times the net tangible assets, which would give 350p as full value." FinnCap recommends to "buy up to 300p".