Royal Bank of Canada says the 250p offer to buy Hastings Group Holdings PLC (LON:HSTG) is a “great deal for shareholders”.
RMI and Sampo have offered 250p per share, equating to £1.66bn. It is a premium offer, creating a 40% premium to the market price in July before the approach. We think the acquisition is a great deal for Hastings. The insurer will have more flexibility to fulfil its ambitious growth plans as part of a conglomera
“Prior to this deal, Esure was the most recent UK motor insurer to be acquired in August 2018 by Bain,” RBC analyst James Pearse said in a note.
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“At the time, the Esure purchase price was at a 37% premium (compared to the previous day's closing price), equivalent to a 12.2x 2019 P/E multiple (RBCe).
“By applying the same premium and implied P/E multiple from the Esure deal, we thought a valuation of between 215-233p was a reasonable starting point. Given the agreed price of 250p is even higher than that, we believe this is a great deal for shareholders.”
The analyst added: “We think the acquisition is a great deal for Hastings. The insurer will have more flexibility to fulfil its ambitious growth plans as part of a conglomerate.
“As a listed entity writing primarily UK motor insurance, the company struggled to achieve both its growth and profitability targets at the same time, especially during a downturn in the cycle in 2018 and 2019.”
Whilst moving the price target to the bid price, RBC also sets its rating to ‘sector perform’.
In London, Hastings shares were changing hands at 252.4p.