Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to return to historic highs.
Today I’m looking at RSA Insurance Group (LSE: RSA) (NASDAQOTH: RSANY.US) to ascertain if its share price can return to 676p.
Initial catalyst
As usual, before we establish if RSA can return to 676p, we need to figure out what caused the company’s shares to reach this all-time high in the first place.
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It would appear that in the case of RSA, the company reached this high back at the beginning of 1999, amid the broader FTSE 100 rally. However, like the wider FTSE 100, RSA quickly gave up these gains as the internet bubble burst and by the end of 2002, the company’s shares traded for as little as 100p each.
Still, it was not just the wider market that spurred RSA’s decline. In addition, the company’s earnings collapsed from a figure of 25.2p per share reported for 1999 to a loss for 2002. What’s more, the company’s net asset value per share slid 56% during this period and the company’s dividend payout was slashed from 76p per share for 1999, to 6p per share for 2002.
But can RSA return to its former glory?
RSA’s most recent accounting issues, are yet another chapter in the company’s disappointing history book. Moreover, this bad news makes the prospect of a return to 676p unlikely.
Digging into the numbers it would appear that RSA has a lot of work to do before a return to 676p per share is possible. For example, the company’s net asset value has continued to decline during the past decade and reached a low of 101p per share at the end of 2012, down 78% from the figure reported for 1999.
Furthermore, the group wrote £8.8 billion of insurance business during 2012, 22% more than it did during 1999. However, the company reported earnings per share of only 9p for 2012, compared to 25p per share for 1999. This indicates that the company has either issued a significant amount of shares to bolster its balance sheet, or the company’s profit margins have collapsed.
Foolish summary
All in all then, unlike most companies, which have grown during the past decade, it would appear that RSA has shrunk. The company’s net asset value per share has collapsed along with the company’s net income and dividend.
With this being the case, I feel that RSA cannot return to 676p.
