FBD soars 11% on dividend prospect

Shares in FBD jumped over 11% on rising hopes of a resumption of dividend payments, in time.

Analysts also said the sharp gains also came as the insurer said recent damage wreaked by Storm Ophelia is likely to cost it a lower-than-expected €4m to €6m, considerably less than the €15.2m incurred after Storm Darwin three years ago.

The potential for a positive ruling on its capital base could also boost the firm. In a trading update, FBD said that — discounting any further severe weather events in the remainder of the year — it was on course to deliver “low double-digit return on equity” earlier than previously indicated.

“If the remainder of 2017 is reasonably benign in weather terms, we believe this return is achievable in this financial year,” CEO Fiona Muldoon said.

She said that “despite the impact of Storm Ophelia”, and other storm damage, its financial outlook was improving.

The company was benefiting from higher premiums and “better risk selection”.

“This is a positive development which may also see dividends being reinstated quicker than expected,” said Merrion analyst Darren McKinley, who added that FBD’s new reinsurance programme has mitigated net costs from extreme events.

Mr McKinley said that FBD could be in a position to pay a dividend as early as some time next year.

Merrion has also raised its 12-month share price target for FBD to €9.60, implying the insurance group is also on course to meet the terms by which debt owed to Canada’s Fairfax Financial Holdings is converted to equity.

FBD raised €70m in rescue funding two years ago via a 10-year convertible bond — with a 7% annual interest rate — from Fairfax.

That debt will convert into FBD equity — and around a 19% stake — for Fairfax if FBD’s share price remains at €8.50, or higher, for 180 consecutive trading days between September 23 next year and the same date in 2025. Its shares were trading at €8.70 yesterday.

In August, FBD reported a profit of €11.9m for the first half of the year, compared to a loss of €3.65m for the same period last year.

Davy analyst Emer Lang said its forecasts were based on FBD resuming a dividend in 2020 based on its 2019 earnings. In September, Davy had raised its price target to €9.47. A ruling by the regulator could help boost the company, she said.

“Putting the €4m to €6m cost in context, it compares with the €15.2m cost incurred in 2014 when a series of windstorms culminating in Strom Darwin hit,” the broker said. “They can more than absorb the cost of Ophelia,” she said.