RSA Insurance Group plc Will Be A Buy

… but expect short-term volatility after Stephen Hester was appointed CEO of RSA Insurance Group plc (LON:RSA) .

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

RSAThere’s no doubt that investors in RSA Insurance (LSE: RSA) (NASDAQOTH: RSANY.US) are cheering the appointment of Stephen Hester as its new CEO. The shares leapt 6% on the news, whilst the Financial Times quoted a top 20 shareholder as saying “He’s a bigger name than we’d hope to get”. Mr Hester has a track record in turning around struggling companies, most recently at state-owned RBS where he made great progress before falling foul of political agendas.

Kitchen sink

But shareholders should brace themselves for plenty of bad news. It’s an established trend, if anything becoming more marked, for incoming CEOs to ‘kitchen sink’ all the bad news within their first few months of office. There will be lots of provisions announced with RSA’s results later this month, the inevitable strategic review, and considerable uncertainty for 12 months or so.

I would be hesitant to plunge into the share price rally just yet. Mr Hester should be good for the shares in the long run, but a stream of bad news is likely to cause short-term volatility. The real significance is that having secured someone of Mr Hester’s calibre and reputation, RSA’s shareholders can expect a bolder and more far-reaching solution than if they had a more run-of-the-mill CEO. Indeed, the plaudits that have greeted Mr Hester’s appointment might well embolden him to radical action.

Dividend cut or rights issue?

That means a cut to RSA’s dividend is now more likely — a weaker CEO might have feared the likely share price impact and the possibility of attracting a low-ball bid. Similarly, a rights issue is now more on the cards than before. RSA must shore up its capital and analysts have suggested the company should sell some of its overseas crown jewels. Judging by his reluctance to shrink RBS’s investment bank and US operations — at least precipitously — Mr Hester is more likely to raise capital from the market than by selling core businesses.

Longer term, there is still a question of whether RSA makes sense as a disparate group of national insurance companies, opportunistically in markets where the competitive environment is attractive (other than the over-crowded home UK market). The appointment of Mr Hester might herald the end of the company’s independence — but at a far better price than shareholders could currently expect.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

 > Tony does not own any shares mentioned in this article.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »