Beazley withdraws final offer as analysts speculate its next target

Stockbroker Collins Stewart has downgraded Hardy Underwriting’s stock to ‘hold’ from ‘buy’ after the Lloyd’s insurer rejected a third and final offer of £3.50 a share from rival group Beazley.

Following Hardy’s rejection of the latest bid at a meeting on Monday, Beazley announced that it was withdrawing its offer for the firm.

Hardy’s stock was down 3.9% at midday on the day of the announcement, trading at 273 pence compared with the previous day’s closing price of 284 pence. Beazley’s stock, however, was up 1% at 114.90 pence compared with the previous close of 113.80 pence.

Collins Stewart analyst Ben Cohen wrote in a research note that, as returns were expected to fall across the industry and at Hardy, it could be some time before the underwriter’s share price reached £3.50. While noting that the stock was cheap compared with historical and forecast returns, Cohen said the lack of merger and acquisition prospects, coupled with the low liquidity of Hardy’s stock, had prompted Collins Stewart to cut its price target for Hardy to 285 pence from 330 pence.

“Hardy no longer stands out to me as a particularly cheap share against where the peer group is trading,” Cohen told Insurance Times.

“You could argue that the whole sector is undervalued on a cross-cycle viewpoint, but you could argue that almost any financial stock is undervalued.”

He added: “The lack of liquidity in Hardy is still an issue that needs to be addressed and buying back shares is not the way you are going to do that.”

Hardy announced last month that if Beazley walked away, it would initiate a share buy-back.

Collins Stewart contends that the likelihood of another bidder emerging for Hardy in the medium term is very low. But Cohen said the market may have branded Beazley as a potential buyer.

“For the next six months at least, people will be asking: ‘Who is now on Beazley’s radar? Will it look at Novae or an unlisted company?’.

“I’m not sure that they would, but that tends to be the direction that the market would take and that could weigh on the share price a little bit.”

Beazley made its first play for Hardy on 6 October, offering £3 a share. After a rejection, it returned a month later with an improved £3.30-a-share offer, only to be knocked back again.

After the second rejection, Beazley tried to appeal to Hardy’s shareholders to accept the bid.