A Q1 trading update pushes the Beazley share price up a bit more. Is it still cheap?

The Beazley share price has been motoring up in what might turn out to be the start of a 2024 financial stock recovery. Well, we can hope.

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The insurance sector has been doing well so far in 2024, and the Beazley (LSE: BEZ) share price is no exception.

The shares gained a percent or so on the morning of 29 April, on the firm’s Q1 update. They’re now up 24% year-to-date, and 15% in five years.

Broad sector

The sector covers a wide range of business, from insurance itself, to various forms of investment, pensions and financial sevices.

Beazley, though, has a fairly straight focus. It’s a Lloyd’s of London insurer, going mainly for speciality-risk insurance and reinsurance. But there’s still a wide range of risk coverage there.

So far in 2024, things are going in line with guidance. And that’s bullish, so it’s all good so far.

Insurance boost

For the three months to 31 March, it saw a 7% rise in insurance written premiums. And that led to a net rise of 11%.

The value of cash and investments on the books is 19% higher than 12 months ago, at $10.8bn.

CEO Adrian Cox said: “We are confident of delivering our gross growth guidance for the year of high single digits.

So what does this say about the current state of broker forecasts?

Forecasts

Well, forecasts make me scratch my head a bit. I’m used to seeing stocks in this sector on low valuations. But Beazley has a forward price-to-earnings (P/E) ratio of only 6.2 — around half the FTSE 100 average.

That almost makes Aviva and Legal & General, two of my top picks in the sector, look too steep on P/Es of 11 and 10.5, respectively.

Yet those two do boast higher dividend yields than the 3% or so we can expect from Beazley.

But after a record profit in 2023, the Beazley board launched a share buyback of “up to $325m“.

Risky business

At the time, the CEO said: “We believe that with increased demand for insurance that the accelerating risk environment is creating, as well as an adequate rating environment, we are well positioned to continue successfully growing our business.”

And is that the nub of the stock’s low value, the “accelerating risk environment” thing?

Beazley is at the sharp end of global risk, and the economic waters we’re sailing into just aren’t as calm as they could be. Not by a long way.

Another AI stock?

At FY time, the firm said: “We are continuing to expand our use of AI, including piloting Generative AI in several areas of our business.”

Now, that’s all fine. But the mere mention of AI can send investors rushing to buy, even when they don’t fully understand a stock.

That said, the Beazley stock price still looks low to me. So maybe the AI fad is fading a bit, and it’s being more rationally valued now. I hope so.

A buy?

Beazley is a risky stock in a risky sector. And it’s prone to cycles, so buying when it’s on the way up might erode what safety it has, a bit at least.

I’m cautiously optimistic. But it would have to compete with the likes of Legal & General and Phoenix Group Holdings for my next investment cash. And I do like the fat Phoenix dividend.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has positions in Aviva Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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