Car insurance group Hastings today admits to being the latest victim of the Beast from the East, with March’s snow and ice resulting in higher than expected Q1 claims costs.

Management also pointed to “challenging” price competition in Jan and Feb, which is code for “we had to offer lower premiums to secure business”. This trend may have since improved, but any return of more “challenging” pricing conditions could weigh on FY profitability. The same is true of any further inclement weather. The group remains confident in a FY loss ratio just below or within the target range of 75-79%, however, this would still represent a deterioration on last year’s better than expected 73%.

In fact, Q1 growth figures may look impressive (revenues +18% YoY/+12% QoQ, gross written premiums +16% YoY/+5% QoQ, live policies +10% YoY), but they still represent a slowing versus the growth published for FY17. Which will be something that shareholders will need to monitor.

Investors are even ignoring another 10bp increase in market share to hit 7.4%. Understandably so, in our opinion. After all, there’s only so far you can go in undercutting rivals, even if it does boost your market share. If profits suffer, so too will cash flow, which could put the dividend at risk. And for income seekers Hastings’ yield is valuable, forecast at 5.2% for this year and 7.2% by 2020.

The shares are well off their worst levels of -11.8% (13-month lows) thanks to bargain hunters stepping in to pull the price back above March and April lows of 257p. A close above this level could help cement it as support for a recovery, even after today’s flirts south. A close below, however, could seal the deal on a breakdown. The shares go ex-div for 8.5p next week (3 May).

Mike van Dulken, Head of Research, 26 Apr 2018