Tuesday tips round-up: Serco, Hiscox

11th Nov 2014 07:31

Take a step back to keep forging ahead, that was yesterday´s message from Serco´s chief, Rupert Soames, as he announced a 1.5bn pound write-off related to a review of goodwill and mispriced contracts. Understandably, given that it wiped 40% off of next year´s consensus forecast for earnings, the shares duly cratered by almost a third.As for the 'forging ahead' bit, that will take some time to materialise, as the company hives off unwanted businesses, and focuses on public sector clients - a segment which the firm believes can grow between 5% to 7% a year. You should not doubt Mr.Soames´ ability to turn around the fortunes of the company, but there might be less to turn around than one might have thought, says the Financial Times´ Lex column.A benign catastrophe season and poor returns on bonds has brought a wall of money into the re-insurance market, depressing rates. Coupled with a greater confidence in insurance as an investment class , that in turn has lowered rates insurance rates as well - contagion, as Hiscox put it yesterday. Hence the company´s move further into those areas whre its expertise affords it a competitive advantage. Its re-insurance portfolios in the US and in international business have shrunk by 15% and 10%, respectively, while retail insurance in the US now makes up half of the group´s total gross written premiums.Nevertheless, at some point catastrophe will strike again and much of that wave of capital will recede. In the meantime, the prospects are good for an additional return of capital come round the firm´s next set of results in the spring. The shares are thus attractive for now. "Buy," says The Times´s Tempus.