Usually, every quarter there’s a reshuffle within the FTSE 250 and the FTSE 100. It’s one thing just like the soccer leagues, in that some shares get promoted for good efficiency from the FTSE 250 to the FTSE 100. Others get relegated. In the newest overview, Hiscox (LSE:HSX) acquired the decision up to the primary index. What occurs now? Right here’s what I believe.

The journey again to the highest

To be clear, this isn’t the primary time Hiscox has been giant sufficient to maneuver out of the FTSE 250. Over time, it has fluctuated between the 2 indexes. It fell out of the FTSE 100 again in 2020 when the pandemic hit. Quick ahead to 2024 and the share price rally of 12% has pushed the market cap up to £3.57bn. This is sufficient to get it again to the large league.

Earlier than I can totally clarify the place I believe the inventory goes from right here, it’s necessary for me to grasp the way it has traded within the current previous.

The pandemic wasn’t an awesome interval for Hiscox, which specialises in small enterprise insurance coverage. In the course of the 2020 monetary yr, it was hit with over £350m price of claims. Most of this needed to do with occasion cancellation and enterprise disruption. Consequently, it posted a lack of £293m for the yr.

Nonetheless, it has since been in a position to carry out nicely. In any case, the pandemic shock was a black swan occasion. Throughout regular enterprise circumstances, insurance coverage is a worthwhile and confirmed working mannequin.

Engines totally firing

Over the previous yr, Hiscox has been doing nicely. The interim outcomes that got here out in August present that revenue earlier than tax grew by 7.1% versus H1 2023. The cut up of income from completely different divisions doubtless gave buyers confidence going ahead, as nobody space is overpowering the others.

Retail is doing nicely, with the CEO additionally citing that “as the best property market conditions in a decade have mostly persisted into 2024, we deployed more capital early in the year into our reinsurance business”.

Let’s not neglect that Hiscox has worldwide operations, together with the U.S. and Asia. So even when the UK market underperforms, it might steadiness this out with different areas.

Ideas for the longer term

Regardless of the rally within the share price, the price-to-earnings ratio is simply 6.95. I see this as undervalued, given the truth that I take advantage of a ratio of 10 as a good benchmark. Subsequently, the promotion to the FTSE 100 might assist the inventory to rally additional because it attracts extra consideration from worth buyers.

One danger is that the inventory will get misplaced within the FTSE 100 as a result of different bigger rivals. These embody the likes of Admiral, Prudential, Authorized & Normal, to call only a few! This might stall the momentum of the share price, as buyers would possibly have already got sufficient publicity to this sector.

In the end, I believe the longer term is shiny for Hiscox and am contemplating including it to my portfolio.