Lancashire Holdings left at 'hold' by Canaccord

Lancashire Holdings was left at a ‘hold’ rating by Canaccord Genuity on Thursday but its target price was lifted to 600p from 550p after better-than-feared first half profits.

The Bermuda-based insurance company on Wednesday reported profit before tax fell sharply to $56.6m in the six months ended 30 June, ahead of the $54m market consensus but down just over a third from the $88.6m last year. Pre-tax profit in the second quarter fell to $30.1m from $37.1m the same quarter a year ago, although it was 10% above market consensus.

The first half combined ratio rose to 76% from the 75% in the same period last year and bond yield reductions in the second quarter drove an investment return of 1.6%, up from 1.0% a year ago. The second quarter combined ratio rose to 80.6% from 78.2% the prior year.

“The 80.6% combined ratio compares very well with peers, but benefited from 35% points of reserve release, the biggest as a percentage of premium since Q1 2011,” said Canaccord analyst Ben Cohen.

Canaccord expects earnings per share to fall 4% in fiscal year 2016 but to pick up in 2017 with a 6% increase in EPS.

Cohen said the group’s shares stand to benefit from a weaker pound against the dollar.

“Sterling weakness has provided a boost to the share price over the quarter, but we think fundamentals are little changed, if not worse,” he said.

“In an even lower bond yield environment, and with peers Beazley and Hiscox talking down Special dividends, the importance of Lancashire’s yield has increased, in our view.”

Shares fell 0.98% to 603.50p at 1108 BST.