RSA requires further funding

Ahead of Thursday’s figures release, RSA Insurance Group is poised to raise £800 million from a rights issue. 

Stephen Hester, the new CEO of RSA, has obviously learnt from his position at the Royal Bank of Scotland that time waits for no man; only three weeks into his new job and he has already come to the conclusion that action is required in order to stabilise the RSA books.

Some sort of fundraising had been anticipated by the city, but £800 million is almost double what was initially perceived to be the insurance firm’s requirements. In contrast to many FTSE quoted firms, it looks increasingly likely that the already-trimmed dividend will be cut completely this year, as the company looks to batten down the hatches.

When the company’s figures are released they are expected to reveal that profits have dropped by over 70% to around £130 million. As disappointing as that might be, at least this is a company that makes a profit; investors thinking about the rights will therefore be heartened that they are not looking a company with an aggressive burn rate but one that is struggling financing.

When looking at the share price action, it is obvious that the market is unsure of where its future lies. The success, or otherwise, of the rights issue will go a long way to determining the market's mindset towards RSA. So far, 2014 has seen the share price hold above 94.5p, but any break below this level could see panic ensue. However, City sentiment is likely to be positive with the very well-regarded Stephen Hester at the helm. 

RSA Insurance Group chart

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