Financial Analysis of Hiscox

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TABLE OF CONTENTS

Introduction......................................................................................................................................2
Comparison of Slope Coefficient................................................................................................2
Share Price Performance..............................................................................................................3
Hiscox Share Price versus FTSE 250..........................................................................................5
Fundamental factors effecting share price of Hiscox..................................................................6
Conclusion.......................................................................................................................................8
References........................................................................................................................................9

INTRODUCTION
Hiscox Ltd is a Bermuda-joined protection supplier, the London Stock Exchange listed. Also
provide underwriting services at Lloyds of London, the organisation to a great extent works in
corner zones of the business sector, offering property and setback protection pointed at
organisations and high total assets people, and spread against such hazards as hacking, abducting
and satellite harm. The firm is the part of the FTSE 250 index. The organisation offers both
individual and business protection blankets in an extent of the territories: for people, Hiscox
gives home and substance protection to higher worth houses, and additionally exemplary auto,
artistic work, bloodstock, grab and payoff and particular mischance spread. For organisations,
spread sorts incorporate property, marine, aviation, proficient reimbursement, programmer and
political danger protection and in addition reinsurance (Hiscox, 2014).

COMPARISON OF SLOPE COEFFICIENT

Sharpe (1964) provided the foundation for measuring the systematic risk of security, which
specifies the portion of individual assets total volatility contributed to variance of the total
market portfolio (Sharifzadeh, 2010). I have collected the data of Hiscox from January 2011 to
February 2014 and compared with FTSE 250 prices. Calculated the returns using the formula of
old price divided by current price minus one. From these returns I calculated the slope coefficient
(beta) of market return over Hiscox returns. The resulted beta was amounted to 0.1 which shows
very less dependence of Hiscox over the market. This indicates the Hiscox stock volatility is
almost independent of market volatility. Besley and Brigham (2007) indicated that slope
coefficient which contains the value in between 0.5 to 1 specify the sensitivity of stock returns
according to the information in the market and these stocks move with the movement of the
market. Below this limit shows the less sensitivity of the stock. Above 1 beta value indicate that
stock moves in advance to the information in the market. That means these stocks are more
volatile and move ahead of the market. Banks are the bright example of these stocks that move
before the floatation of the information in the market.
According to my analysis Hiscox stock shows less sensitivity with the market but the comparison
with the publish beta told a different story. According to uk.rueters.com the beta value of Hiscox
shows the value of 0.57, which represents the significant difference between the calculated value
and the published value. The main reason for that Reuters website used the rebased value of
2

FTSE 250 in comparison with HSX.L but I have selected the actual data of FTSE 250 and
Hiscox which gave the results different from published data. The difference will be clear in next
heading of share price comparison of Hiscox and FTSE 250. The published beta of 0.57 indicate
that share price and returns of Hiscox are sensitive to the information provided by the market
barometer, which in this case is FTSE 250, and move after the information float in the market.

SHARE PRICE PERFORMANCE

Share price of Hiscox from January 2011 to February 2014 indicates the positive trend in returns
at the end but overall there is shaky performance of Hiscox in figure 1 indicates the four weeks
moving average returns of Hiscox which indicates the volatile nature of the security. Share prices
of Hiscox were not consistent and there are negative and positive trends.
Figure 1 - Four week moving average of Hiscox
180
160
140
120
100
80
60
40
20
0
-20

Overall figure 2 indicates the positive trend in share prices for Hiscox from 2011 to 2014 as it
starts from share price of 425 and ends up with 688. This figure shows the significant increase
in the share price and shows the good performance of the company but on the other hand as
figure 1 shows the return from this security is more volatile not stable which raise the concerns
in the mind of the investors before making investment in the company.
3

Figure 2 - Share prices of Hiscox

Source: uk.rueters.com
Above figure shows the trends of share prices of Hiscox it is shown there is some setback from
the start but from July 2012 there is an increase in share prices of Hiscox to evaluate the market
movement traders use pivot points to see whether there is bullish or bearish environment in the
market. Trend lines are drawn in between two or more prior pivot points. Most common use of
trend line is to draw diagonal levels, which help in making decision regarding entering and exit
investment in stock market (Siddaiah, 2011).
Overall there is positive enhancement in the market performance of Hiscox which is good for the
company. The consistent increase in the share price indicates the long term growth of the
company. In short term there is shaky trend in the returns of share prices as shown by figure 1
but when going towards the long term impact there is a positive trend in the company. It will
give the positive signal to those investors who want to stay with the company for the longer
period and do not rely on short term capital gains. There is also an increase in dividend per share
from 14.2p in 2009 to 19.84p in 2013 which indicate that company is targeting the clientele who
want to stay with the company and they are rewarding there shareholders with increased
dividends.

HISCOX SHARE PRICE VERSUS FTSE 250

As previous section indicated that Hiscox proposed performance in long run this heading will
provide the comparison of Hiscox with FTSE 250, when we talk about corporate finance, the
most appropriate measures are industry adjusted (Malhotra et al. 2012). For stock returns
comparison with FTSE will give the brief analysis that whether the firm is moving with or
against the movement of the market. How much market is influencing the movement of the
company and how much volatile is the firm stock price against movement in market (Chen et al.
2014).
Figure 3 - Weakly adjusted closing prices comparison of FTSE 250 and HSX.L
5000.00
4500.00
4000.00
3500.00
3000.00
2500.00
2000.00
1500.00
1000.00
500.00
0.00

HSX.L Adj Close

FTSE 250 Adj Close

Figure 3 indicate the comparison of collected weakly adjusted price data of FTSE and Hiscox the
figure clearly shows the difference in volatility of Hiscox and FTSE 250. According to the data
collected there seem less sensitivity of Hiscox against the weakly adjusted FTSE 250 index.
FTSE market is more volatile as compare to Hiscox.

Figure 4 - Rebased FTSE 250 and Hiscox price comparison

Source: uk.reuters.com

On the other hand the published diagram shows the other way around. Figure 2 shows the
different comparison of Hiscox and FTSE 250 which shows the different site and do not
represent same results as provided by our data. This figure indicates that market was performing
well against the securing as from July 2013 the share price of the security was not up to the
market with the market performance. Also there is a big gap in July 2012 to January 2013 which
shows that FTSE 250 was performing well and Hiscox was not responding well to this positive
change. With the rebased analysis it is observed that Hiscox stocks are going above the market
price which gave a relaxation for investors. Fluctuation in share price is dominated by the market
which as for the authenticity

FUNDAMENTAL FACTORS EFFECTING SHARE PRICE OF HISCOX

Market performance of the company always represents the fundamentals of the organisation.
According to above discussion Hiscox is targeting long term growth in market and for achieving
this objective it has to perform fundamentally (Berk et al. 2012).

Table 1 - Profit and Loss factors of Hiscox

2009

Hiscox - Profit and Loss

Year ended: 31December
2010
2011
2012

2013

2009

2010

2011

2012

2013

Trend Analysis

Year
Indicators
Operating profit

320.62

211.37

17.27

217.45

244.54

100%

66%

5%

68%

76%

Profit after tax

280.5

178.8

21.27

208.03

237.76

100%

64%

8%

74%

85%

Ordinary Dividends

48.61

58.46

50.51

70.17

222.34

100%

120%

104%

144%

457%

Retained Profit

231.88

120.34

-29.24

137.85

15.42

100%

52%

-13%

59%

7%

DPS

14.2

16.93

18.13

19.55

19.84

100%

119%

128%

138%

140%

Reported EPS

78.96

49.58

5.79

55.7

66.3

100%

63%

7%

71%

84%

1061

1164

1254

1400

1600

100%

110%

118%

132%

151%

1189.52

1452.37

1450.75

1791.62

2467.74

100%

122%

122%

151%

207%

Per Share Data

Other Data
Number of Employees
Market Cap at B/S Date

Source: Morningstar Company Intelligence (2013)

Table 1 indicates the factors belonging to profit and loss statement of Hiscox and these factors
can play a significant role in shaping the share price for the company. First we come to the most
significant prospect i.e. dividend. The growth of dividend from 2009 to 2013 is phenomenal.
Dividends in 2009 are 48m which has shown significant 457% increase in value to 222.34m.
This indicates the long term objective of the firm that wants to facilitate the clientele who invest
in the company to stay for the long run. Same trend is shown in the diagram where there are long
term trend lines are shown in figure 2. Dividend per share also increased consistently throughout
the years. Profit retention has reduced significantly which means that company wants to retain
their shareholders by distributing profits among them. Company is not willing to invest and
retain.

Table 2 - Balance Sheet of Hiscox

Hiscox Balance sheet

Trend analysis

Year ended: 31December

Year

2009

2010

2011

2012

2013

2009

2010

2011

2012

2013

Indicators
Investments

2421

2466

2375

2415

2593

100%

102%

98%

100%

107%

Debtors

923

962

1245

1226

1186

100%

104%

135%

133%

128%

Cash

260

336

517

658

564

100%

129%

199%

253%

217%

Total Assets

3817

3991

4223

4386

4436

100%

105%

111%

115%

116%

Creditors

435

424

2814

424

417

100%

98%

647%

97%

96%

Total Liabilities

2696

2725

2967

3021

3026

100%

101%

110%

112%

112%

Total Net Assets

1121

1266

1256

1365

1409

100%

113%

112%

122%

126%

Ordinary Capital and reserves

1121

1266

1256

1365

1409

100%

113%

112%

122%

126%

Source: Morningstar Company intelligence

Table 2 indicates the factors representing the balance sheet of Hiscox and from the table it is
clear that company is not much involved in investment. Investment has just grown from 2,421m
to 2,593m. Working capital efficiency ensures growth (Garc & Mart, 2010). Prospects of
debtors and cash has increased significantly over the years showing good prospects of the
company effecting the share price as company can do good managing there working capital need.
Total assets increased by 116% from 2009 and this growth are consistent throughout the years.
Current liabilities have increased by 112% which is less than growth of assets overall net assets
increased by 126%. This fundamental prospect provides significant impact on share prices as
there is a long term benefits the company and its investor can receive.

CONCLUSION
There are long term benefits to Hiscox both in shape of market and fundamentals. Company beta
is not relevant to market beta. There should be some other measures which can be taken to check
the validity of the beta on the website. Beta represents market risk and it is important to see the
fare value of beta before investment in the stock market. The market trends of FTSE 250 and
Hiscox are quite similar and according to market beta Hiscox is following the FTSE 250. Hiscox
has long term objectives and its fundamentals indicate the same from past five years. As share
price is consistently increasing the fundamentals are performing. The big increase in dividends
indicates that company wants to retain its shareholders by giving them heavy dividends.
8

REFERENCES
Besley, S., & Brigham, E. (2007). Essentials of Managerial Finance. 14th edition, Cengage
Learning
Berk, J., DeMarzo, P., & Harford, J. (2012). Fundamentals of Corporate Finance. 2nd edition,
Prentice Hall
Chen, W., Wei, Y., Lang, Q., Lin, Y., & Liu, M. (2014). Financial market volatility and contagion
effect: A copulamultifractal volatility approach. Physical A: Statistical Mechanics and its
Applications, 398, 289-300. doi:10.1016/j.physa.2013.12.016
Garc, P. J., & Mart, P. (2010). Working capital management in SMEs, 50(457), 511527.
doi:10.1111/j.1467-629X.2009.00331.x
Hiscox (2014). Hiscox: as good as our word. Retrieved from http://www.hiscox.co.uk/
Malhotra, M., Arun, M. T., & Gopalaswamy, K. (2012). Evidence on changes in Stock Prices and
Liquidity around Rights Issue Announcement. Industry Specific Analysis, 5(2).
Morningstar Company Intelligence (2013). Morningstar Company Intelligence. Retrieved April
10, 2014, from www.hemscott.com/guru
Sharpe, W. F. (1964). Capital asset prices: a theory of market equilibrium under conditions of
risk. Journal of Finance, 19, 425-442.
Sharifzadeh, M. (2010). An Empirical and Theoretical Analysis of Capital Asset Pricing Model.
Universal-Publishers
Siddaiah, T. (2011). Financial services. Pearson Education India
UK.rueters.com. (2014). No Title. Retrieved from http://uk.reuters.com/business/quotes/analyst?
symbol=HSX.L