Charles Taylor (LSE: CTR) is a relatively misunderstood business. The company’s primary focus is insurance, and it offers a broad selection of products and services to insurance industry clients such as loss -adjusting and the administration of workers’ compensation claims. These businesses are not exciting, but they are essential, and Charles Taylor can use its experience operating in these markets to extract the best returns for investors.
Indeed, today the firm announced a near 25% increase in revenues and 31% increase in statutory profit before tax for the year ended 31 December thanks to organic growth and bolt-on acquisitions. Off the back of this growth, overall earnings per share increased 17%, and management increased the full-year dividend per share 5% to 11p. Adjusted earnings per share for the period were 25p.
Growth through experience
According to Charles Taylor, the company “aims to deliver shareholder value by delivering a diversified set of income streams,” which provide sustainable earnings growth while at the same time investing in “opportunities to achieve a step change in longer term earnings growth.” I believe that this focus on growth is what makes the firm attractive as an investment.
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Management is growing the business by expanding outside of its core markets into areas where Charles Taylor can bring decades of experience to bear. For example, during 2017 the firm acquired the book of Zurich International life insurance bonds, which it then folded into its wholly-owned Isle of Man life insurer. The group also purchased Criterion Adjusters, a loss-adjusting business focused on UK high net worth insurance sectors in 2017, further building on the company’s presence in the loss-adjusting business.
As long as Charles Taylor continues to make sensible acquisitions, and maintains its reputation in the insurance business, I believe that it is a great growth pick. The stock also supports a dividend yield of 4% after today’s hike, so there’s both income and growth on offer. What’s more, based on today’s reported adjusted earnings per share figure, the stock is trading at a bargain-basement P/E of 10.8.
Charles Taylor’s peer, Jardine Lloyd Thompson (LSE: JLT) isn’t as cheap on a P/E basis, but it’s still an attractive investment in my view considering the company’s historical growth.
Simplifying the business
Jardine Lloyd is a provider of insurance, employee benefits advice and associated services. There’s some overlap with Charles Taylor’s offering, but Jardine is more focused on providing insurance rather than providing related services.
Last year the company reported a 35% increase in full-year pre-tax profit and to help improve profitability further, management is reorganising the business into three separate divisions, reinsurance, speciality insurance, and employee benefits, which should generate an estimated £40m in annualised savings at a one-off cost of £45m. City analysts expect the reorganisation, as well as revenue growth, to power net profit higher by 57% over the next two years. Based on this target, earnings per share could hit 84p by 2019 giving a forward P/E of 15.4 — not cheap but in line with the insurance sector’s median valuation.
As well as steady growth, shares in Jardine support a dividend yield of 2.8%, and the payout has grown steadily at a rate of around 6% per annum over the past six years.
