Amlin off all-time high

The insurer will report its first-quarter figures on Thursday 21 May, and the stock has retreated from its record high. 

People walking along Millennium Bridge
Source: Bloomberg

The company’s share price has been running out of steam over the last month, and the low interest rate environment is holding back the firm. In March, the insurer revealed a 20% drop in full-year pre-tax profits, and its investment return declined by 26% over the same period. Amlin blamed the ultra-low interest rates for the drop-off in profits, as the low interest rate curtails the premium it can charge.

The Bank of England is content to keep interest rates on hold, and seeing as the UK has just slipped into deflation traders are now looking to 2016 for an interest rate hike. This will keep weighing on Amlin’s profits.

The company paid a final dividend of 27p and a special dividend of 15p to shareholders last year. It was the first time Amlin issued a special dividend in nearly a decade. Special dividends are usually paid out when there is a windfall from an asset disposal or an exceptional year’s profits. Amlin’s share price has been on the rise over the past few years, unlike its profits, and the special dividend appears to be a show of strength in addition to keeping shareholders sweet.

Amlin will report its full-year numbers in March 2016, and the market is anticipating revenue of £2.41 billion and adjusted net income of £206 million. These forecasts represent a 4% rise in revenue and a 13% drop in adjusted net profit.

Equity analysts are a touch on the bearish side when it comes to Amlin, and out of the 21 recommendations, three are buys, ten are holds, and eight are sells. The average target price is 467p, which is 5% below the current price. Investment banks are more bullish on RSA, and out of the 20 ratings, three are buys, 12 are holds, and five are sells. The average target price is 440p, which is the same as the current price.

Amlin’s share price is recovering from a four-month low, and the resistance at 490p is the initial target. If that is cleared then the previous resistance at 530p will be the next target. However, should it fail to clear this then the support in the 450p area will be brought into play, with the next level of support coming in at 400p.

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