“Discussions, which are ongoing, are at an early stage and there can be no certainty that any offer will ultimately be made for Jelf or as to the terms of any such offer”, the company said in today’s announcement.

Jelf provides services to both businesses and individuals in three main segments: insurance, employee benefits and financial planning. Insurance broking is its largest segment, accounting for just over two-thirds of Jelf’s total revenues.

Marsh, which is a subsidiary of the second largest insurance broker in the world, is interested in buying Jelf because it is looking to expand its reach across the small and medium-sized business sector in the UK. Earlier this month, Marsh announced that it had completed its acquisition of SME Insurance Services, another independent broker in the UK that serves small and medium-sized businesses.

Jelf has itself been active in acquiring smaller companies, having completed seven acquisitions since 2013. Making acquisitions has been the company’s main engine for growth and Jelf has had a strong track record of integrating regional businesses. Acquisitions enable Jelf to grow its client base more quickly, become more efficient, and helps it to attract new business.

The insurance broker is also doing well in growing organically, with organic revenue growth of 4.2% in the first half of its 2014/5 financial year. It has achieved this with strong customer retention, success with gaining new customers and higher levels of insurance cover being taken out. This shows that even if Marsh does not though with the acquisitions, Jelf is a sustainable business in its own right. In addition, a rival bid could develop, as consolidation activity picks up in the insurance sector.

Valuations for Jelf’s shares are already quite pricey, as shares in the company have already risen by 97% over the past year. Its forward P/E ratio is currently 18.4, despite analysts expecting underlying EPS will jump 90% higher this year, to 11.4 pence. For 2015/6, analysts expect underlying EPS growth will slow to just 5%, which means its forward P/E falls only slightly, to 17.5. With such a pricey forward earnings valuation, Marsh is unlikely to reward Jelf’s shareholders with a substantial premium on today’s share price.

The post Shares In Jelf Group plc Soar 20% As Marsh Emerges As A Potential Buyer appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Well, come Tuesday, and the insurer acquired rival Beaumont for a song, sending Jelf shares 10 % higher the following day.

With great companies that are on the up, you can’t afford to sit about and wait for bargains, especially in markets that are a little on the saturated side with poorer-performing companies that hold no appeal whatsoever right now. Probably the poorest comparative performer this year has been Tesco (LSE: TSCO), which I tried to warn readers off only weeks before all the major trouble there began. There’s been a lot of chat, but the truth is that things aren’t likely to get much better there any time soon, so if you are holding on in vain trying to recover previous losses with a little late-stage momentum rally, you are better off looking elsewhere.

AA To The Rescue

Appropriately enough for investors whose portfolios could do with a repair right now, AA (LSE: AA) holds some really nice appeal going into the New Year.

It’s worth noting briefly first that are a number of superficial quantitative similarities between AA and Jelf: both companies are trading at around 25x P/E, both are up 42% in 2014, and both have recently received affirmations of “buy” ratings by the investment bankers who represent them (and therefore know them best) in the past month, accounting for an identical 14% rise in the share price over the past financial quarter.

These are not mere coincidences, despite the fact that the companies are far apart in size (AA is worth £1.85 billion right now). Good stocks tend to trade similarly for a good reason: the same investors are buying them at more or less the same time. Also, they have competent management teams that are judging the market right, skipping the need to go announce something important when the going is rough and instead saving the pitch for when everyone’s in the mood.

That said, these past two quarters have been especially tricky, however great your timing of the market feed might be. Which is why it’s especially impressive in the case of AA that the company, loaded up to the eyeballs in debt, went for the chance to IPO in July and has since posted such an impressive performance.

Red Hot IPO

AA owes a lot of its good fortune right now to its advisers Liberum, who seized the chance to steamroll an 11^th hour deal into the market by pitching AA’s former owner with an impressive case for the British insurer to go public over the summer when no one was looking.

But it’s also shown that with the newfound headline status and extra capital, it can deliver on the things that matter to investors – and fast. Thus, while AA’s actual numbers of policies in force have shrunk on the year-ago period as it has contended with the same difficult operating environment that everyone has lately, the company’s profit for the period is 88% higher, at £28.9 million. That’s the kind of story that just makes you feel great about IPOs.

Revenue increased in line with the insurer’s cost of sales, which is important when you are dealing with claims, as any spike in sales costs not matched by income at some level leaves the company’s future growth exponentially more open to the risk of value erosion, since the same policies also potentially lie in wait as claims.

The post If You Crashed After Tesco PLC, Then It’s AA PLC To The Rescue! appeared first on The Twelfth Magpie.

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Daniel Mark Harrison has no position in any shares mentioned. The Motley Fool UK owns shares of Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

If you bought into the falling price of Aviva, just as I suggested, then you will have made some good money. But while Aviva might turn out to be a good buy-and-hold investment, gains have hardly been forthcoming for these sorts of investors thus far, who may have gotten a little more choppiness than they had bargained for. When relative value goes out to tide, you need a different sort of dinghy to ride into shore.

Nimble & Cash-Rich: Jelf Group

It’s best in these sorts of conditions to focus on nimble players with low levels of leverage and lots of earnings coming in that can be used to snap up smaller competitors and sideline businesses that find themselves unstuck in the same environment. For an example of just such a company, look no further than Jelf (LSE: JLF).

Jelf has leaped an astonishing 42% in the past year, and while the bulk of that action took place in the first quarter, all the signs are on the wall that it’s about to do something similar again in 2015.

Until British insurance premiums pick up again, it’s unlikely that any insurers are going to have operating earnings growth to write home about. Which means that the opportunities in this sector from an investing standpoint are with those companies that can scale out their business lines quickly while maintaining existing operations in a relatively competitive hold.

Acquisitions, Acquisitions, Acquisitions

That’s much easier said than done, but it’s what Jelf’s management team has proven capable of doing with the £135 million of market cap they have to work with and steer upwards. In May, the company completed the purchase of The Insurance Partnership Services (TIP) for £12 million, principally to boost up its presence in Hull, Leeds and York, which were showing signs of significant economic improvement.

A glance at this week’s earnings report by Jelf proves that the bet appears to have paid off nicely. While the company could report that the added operations decreased its overhead expenditure as planned, it also revealed that it has paid off a lot of the debt incurred before the acquisition as a result of stronger-than-expected earnings generated by the TIP acquisition. Overall, Jelf wiped £7.8 million pounds of liabilities off its balance sheet, bringing net debt down to just £5.7 million. That’s something to shout about in any market.

Given that Jelf has proven apt at managing the complex and messy process of integrating less-than-stellar subsidiaries into its fold right in time for what may be the last big shake-out of SME insurers for a while, there’s lots of reason to be optimistic that the company’s share price might rocket next year at least as much as it did in the course of this one.

It’s fair to say that investors should probably place a much higher acquisition premium on Jelf’s deals right now than on those of some of its rivals (after all, who else do you see doing the same?) 

So if we assume an EBITDA acquisition multiple of 24x earnings to account for the outperformance, and dilute the forward projection over 122 million outstanding shares, then Jelf is fairly priced at 312p. Even if we cut that multiple in half, there’s still 156p of value right now in the stock, which is 25% above where it sits.

The post If You Got Caught Out With Aviva PLC, Consider Buying Jelf Group PLC appeared first on The Twelfth Magpie.

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Daniel Mark Harrison has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.