Analysts talk up chances of 'now or never' Beazley equity raise

Stock exchange

Jefferies has revised the probability of Beazley raising equity up to 40%, citing feedback from investors that, were the insurer considering the option, it should come “now or never”.

A note by analysts Philip Kett and Nidhi Shah published Thursday estimated that Beazley could raise between $300m (£240m) and $500m (£400m) were it to use equity rather than other options.

The analysts previously put the probably of a Beazley equity raise at around 30%, explaining the revision in terms of feedback from investors that suggested that a raise sooner rather than later would be rewarded.

“Beazley offers investors revenue upside in 2020 and growth thereafter, other equity issues outside of insurance have been to fund expenses during this time of revenue weakness,” they said.

“Thus, with revenue a rare commodity and growth increasingly valuable, investing to support growth is attractive.

“However, were Beazley to wait until later in H2 2020, there is a risk that if the wind season or other natural catastrophes were to occur, then an equity issue might be seen to come from a position of liability-driven capital weakness. This would probably make an issue less attractive, requiring a higher discount.”

The analysts said that other options for fuelling growth included using reinsurance and cutting its 2020 dividend, a mix of which Jefferies retains as its base case expectation.

The note follows Beazley rival Hiscox telling the London Stock Exchange yesterday that an equity raise was among a number of options it was looking at to shore up its position amid the pandemic and a hardening market.

“While we expect that there is plenty of capital and appetite to support the relatively unlikely (but plausible) possibility that both companies raise equity, this may impact the final price,” the analysts said.

“On the other hand, in the long-term, were both companies to raise equity then there is less risk that sentiment is impacted or that such actions are considered an idiosyncratic risk.”

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