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AA-rated Lowen added to ex-Lloyds' car insurer before private equity exit
by Robert St George on Oct 25, 2013 at 12:09
Penta Capital, the private equity team that bought esure from Lloyds three years ago, has sold its last remaining shares in the insurer but JO Hambro Capital's AA-rated James Lowen continues to see value in the stock.
Managed by David Calder and Charles Schrager, Penta took esure off the bank’s hands in 2010 for £190 million. Penta then floated the company in March this year, selling £305 million worth of its shares but retaining an 11.6% stake.
It offloaded £90 million of that in April and has now finally taken the last of its profits, selling 17 million shares for approximately £40 million.
The sale was completed last week, the day after esure paid its first interim dividend – worth just over £430,000 to Penta.
Having listed at a share price of £2.90, esure now trades at £2.42. Its stock reached a peak of £3.34 in July, but £300 million was wiped off its value in August when it revealed that maiden interim dividend would be 14% below analysts’ expectations, disappointing those who had hoped that esure – like its peers in the insurance world – would prove a strong income generator.
Peter Wood, esure’s founder and chairman, still owns around a third of the group. Other investors have remained sanguine about the firm’s prospects.
James Lowen, the Citywire AA-rated co-manager of the £2 billion JOHCM UK Equity Income fund, has been adding to his holding in esure recently, having taken some profits before the August crash. ‘It’s a trough-on-trough opportunity,’ he told Wealth Manager, given the low valuations of both esure and the sector.
Lowen attributed the industry’s weakness to the pressure on its pricing model in the key motor insurance category, which had led to a series of profit warnings. ‘It’s still bad but it’s not getting sequentially worse,’ Lowen said. ‘And as sure as night follows day, pricing will recover.’
The manager estimated that motor insurers were currently losing £15 on every £100 they wrote, and noted that there had been six such cycles in the past 45 years, always followed by a recovery.
Lowen nevertheless commended esure’s decision to slow its expansion rather than grow unprofitably. ‘The strategy change, which has been criticised, was the right thing to do,’ he argued. ‘We don’t think they’ve done anything wrong.’
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