Is Now the Time to Buy RSA Insurance?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 (UKX) and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at RSA Insurance (LSE: RSA  ) to determine whether you should consider buying the shares at 122 pence.

I am assessing each company on several ratios:

Price/Earnings (P/E): Does the share look good value when compared against its competitors?
Price Earnings Growth (PEG): Does the share look good value factoring in predicted growth?
Yield: Does the share provide a solid income for investors?
Dividend Cover: Is the dividend sustainable?

Let's look at the numbers

Stock Price 3-Yr. EPS Growth Projected P/E PEG Yield 3-Yr. Dividend Growth Dividend Cover
RSA Insurance 122p -2.5% 10.5 N/A 7.5% 11% 1.8

The consensus analyst estimate for next year's earnings per share is 11.6 pence (down 29%) and dividend per share is 9.3p (up 1%).

Trading on a projected P/E of 10.5, RSA appears cheaper than its peers in the Non-life Insurance sector, who are currently trading on an average P/E of around 13. RSA's lower-than-average P/E and negative growth rate give a negative PEG ratio, which cannot help with my analysis.

Supporting a 7.5% yield, the dividend is nearly double the Non-life Insurance sector average of 5%. RSA has a three-year compounded dividend-growth rate of 11%, implying the income from the shares could stay above that of the company's peers.

Indeed, the dividend is currently nearly two times covered, although cover is forecast to fall to about 1.2 times next year.

Falling growth, but a strong yield
In my opinion, RSA is cheap for the dividend it is paying. However, with earnings forecast to fall next year, I believe many investors doubt RSA's ability to maintain the payout.

I believe the company can continue to return decent payments to shareholders. At the beginning of November, RSA announced the first nine months of 2012 had seen net written premiums up 4% to 6.2 billion pounds. However, sales were flat in the U.K. and Western Europe.

On the other hand, sales within emerging markets were up 15% to 887 million pounds, while sales within Canada were up 6% to 1.2 billion pounds.

In addition, the group stated that trading in all sectors had improved, except for motor insurance, which is encountering various industry troubles.

Financially, RSA expects its combined operating ratio to be less than 96% for 2012. This projection means the group believes it will receive more money from insurance premiums than it will pay through claims and expenses -- a ratio below 100% means the group makes a profit. I also see the company's net asset value was 105 pence per share, which means the company is currently trading at only a 16% premium to the value of its balance sheet.

Anyway, in my opinion, RSA is still profitable and looks to be generating enough revenue to cover its dividend into the future. With this in mind and the strong yield on offer, I believe now looks to be a good time to buy RSA at 122 pence.

More FTSE opportunities
As well as RSA, I am also positive on the FTSE shares highlighted in "8 Dividend Plays Held by Britain's Super Investor". This exclusive report reveals the favourite income stocks owned by Neil Woodford -- the City legend whose portfolios have thrashed the FTSE All-Share by 200% during the 15 years to October 2012.

The report, which explains the full investing logic behind Woodford's dividend strategy and his preferred blue chips, is free to all private investors. Just click here for your copy. But do hurry, as the report is available for a limited time only.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.

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