Dane Douetil must be scratching his head over the market's refusal to buy Brit stock
Brit chief executive Dane Douetil clearly wanted to go a step further than merely assert that his company could deal with subprime. It is not often that a company jots down the entire contents of its investment portfolio and sends it out for public consideration – as Brit did this week in its 2007 results.
This, and the revelation that £12.7m of potential subprime-related claims were lingering (although covered by over £60m of special reserves), were bold steps. Unfortunately – and going against general analyst consensus – the market declined to buy Brit stock. Perhaps the marginal 6p drop on the morning of the results was more a reflection of another week of selling and general FTSE downturn, but it was certainly not the reaction that Brit would have expected while also posting an improved pre-tax profit of £191m.
Just before the results were published, Credit Suisse analysts upgraded the stock from ‘underperform’ to ‘neutral’, saying Brit’s share price was low compared to asset value. Their main worry was subprime.
Brit stock was also recommended by both Numis and KBC Peel Hunt at the start of the year, with KBC upping a ‘hold’ recommendation to ‘add’ and Numis reiterating its ‘buy’ recommendation. Again, subprime worries were voiced, but both analysts believed them to be overstated.
To date, Brit's share price is 6p above its pre-results price, sitting at 233p. But following his company’s graphic reassurances, Douetil must be wondering what he has to do to persuade the City to buy its stock - the company is still some way off its 340p share price of last October. As we head deeper into the cycle downturn, his job won’t be made any easier.
