Most stocks in the FTSE 100 are mature large-cap companies, so seeing sudden double-digit share price surges isn’t very common. But there’s always the occasional exception. And last week, Beazley’s (LSE:BEZ) share price went on a rampage, skyrocketing by over 42% in less than a day!
What happened? And should investors consider buying the shares following this surge?
Inspecting the share price
As a quick introduction, Beazley’s a specialist insurance group. Rather than offering general products like home and car insurance, the company focuses on niche items that command much higher margins. Think high-value artwork, ransomware attacks on corporations, or professional indemnity.
With rising demand across cybersecurity and specialist property insurance, the company’s revenues, profits, and margins have all been steadily increasing over the last five years. And as a result, even before the recent surge, Beazley’s shares had more than doubled since 2021.
But the catalyst for its latest jump wasn’t another impressive set of results, but rather an unsolicited bid for a takeover.
On 19 January, the Swiss insurance giant Zurich Insurance Group, which has seemingly been eying Beazley for a while now, issued a cash offer to acquire its peer for a total of £7.67bn, or 1,280p per share. This price was significantly ahead of the 820p Beazley shares were trading before. So it isn’t surprising the stock went on to deliver its strongest single-day return since its IPO in 2002.
Still worth buying?
With the stock now trading near 1,130p, there’s still an 13% gap with the proposed acquisition price. So does that mean there’s still an opportunity for investors capitalise on this takeover? Maybe.
The combined enterprise would become one of the largest speciality insurance groups in the world. It would have $15bn of gross underwritten premiums, with unmatched market data and distribution capabilities.
However, it’s important to remember that Zurich’s only submitted a bid. It has until 16 February to make a firm offer. And even then there’s no guarantee of success. In fact, a few days after the bid announcement, Beazley’s board has actually rejected the offer, and Zurich isn’t obliged to make another.
Even if another offer is made and accepted, the deal may also draw the attention of regulators across multiple jurisdictions. Concessions and divestments may be demanded to protect market competition. And this, in turn, could undermine the financial viability of the takeover. This potentially could lead to the whole thing being called off.
So is this a risk worth taking?
Looking at Beazley’s current trajectory, the average consensus from analysts expects earnings per share to reach $1.46 (or 108p at current exchange rates) for 2025. Assuming this target’s hit, this puts the FTSE 100 stock’s price-to-earnings ratio at around 10.6. That’s roughly in line with the wider industry average.
That suggests even if the deal ends up falling through, the stock isn’t outrageously expensive despite the recent share price surge. With that in mind, the risk-to-reward ratio could still be favourable and worth a deeper investigation from investors with a higher risk-tolerance for volatility.
But personally, I’ve got my eye on other opportunities within the FTSE 100 that could have even more long-term growth potential.
