Shore Capital director Eamonn Flanagan predicts that dividend is likely to be materially weakened
A deep fall in RSA shares will trigger a bid, analysts have said.
RSA was dealt a double blow today following the announcement of its third profit warning and the resignation of group chief executive Simon Lee.
At the close of business yesterday RSA shares had dipped below the £1 mark.
RSA Group plc is also having to inject £135m today to strengthen its Irish reserves, which is in addition to the previously announced £70m.
The final dividend is also under review.
Panmure Gordon & Co analyst Barrie Cornes said: “We have cut our 2013 earnings per share from 7.54p a share to 4.91p a share, which means that the dividend based on our previous 6.2p a share forecast is not covered.
“RSA has flagged that it will need to consider the dividend in light of this announcement, which we take to mean the 2013 final dividend will almost certainly be cut. We have consequently lowered our forecast for 2013 from 6.2p a share to 4.34p a share.
“Should the shares trade below 90p share we think that there is a real possibility that RSA could be the subject of a bid approach given the quality of some of its businesses, particularly Canada and Scandinavia.”
Shore Capital director Eamonn Flanagan added: “We expect the shares in RSA to react negatively to this announcement, with the last remaining ‘prop’ for the shares, namely the dividend, now likely to be materially weakened.
“However, the decisive action taken by the board and the quality of its assets across the globe should ensure that any fall in price be contained … too strong a negative reaction is likely to deliver an opportunistic bid for the group, in our view.
“As a consequence, we reiterate our hold recommendation on RSA.”