Lombard

February 27, 2013 1:38 pm

Esure: A tenner for a tenor

Investors should ‘Go compare!’ the value of the insurer

“Go compare!” is the refrain of the comedic Italian tenor who advertises a price comparison website part-owned by Esure. Investors should take Signor Compario at his word in assessing the value of the motor and home insurer, which is planning to float. Founder Peter Wood and private equity backer Tosca Penta are likely to push for a full price, valuing the group’s equity at up to £1.1bn.

That contrasts with the thrifty £260m they paid state-backed Lloyds Bank for the business in 2010. Comparing Esure with its rivals will show whether the duo are pushing their luck.

Esure is riding on the coat tails of Direct Line, the UK’s biggest vendor of motor insurance, a price-driven sector with weak growth. Compelled to sell by trust-busters, owner Royal Bank of Scotland floated a chunk last year. Priced cautiously close to book value, the success of the deal revived the market for domestic initial public offerings.

Esure is more efficient and has no trailblazer’s role to fulfil. Mr Wood, who created both groups, may therefore be tempted to minimise the discount investors can expect for supporting Esure’s debut. An offer size of £400m-£550m is mooted, 35-50 per cent of the shares. At a capitalisation of £1.1bn, the trailing earnings multiple would be about 12.5 times, not far from where long-quoted rivals are trading.

Mr Wood, who owns half of Esure, plans to sell about 17 per cent of the shares, bringing him a chunky £180m at the top end of the putative price range. So he cannot be accused of cutting and running.

But Esure faces challenges, for all the impetus that sparkling 2012 results will give to pre-float marketing. The abolition of gender-specific premiums could damage Sheila’s Wheels, a subsidiary that insures women drivers. High profits on such non-underwriting revenues as referral fees look set to fall. A float price of 10 times 2013 forecast earnings, as suggested by Shore Capital’s Eamonn Flanagan, would build in some protection for investors.

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