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Eyes Down For RSA Insurance Group plc’s Results

RSAAfter suffering from years of earnings decline, RSA Insurance Group (LSE: RSA) (NASDAQOTH: RSANY.US) was famously forced to slash its dividend — from a yield as high as 8.7% in 2011, there’s a tumble to 3% expected for the year just ended. And we’ll have those results on Thursday 27 February.

The share price has been in a slump, too, shedding more than 25% over the past 12 months to 97p, with RSA’s Irish problems giving it a kicking while it was down — but at least the accounting irregularities at RSA Ireland do seem to have been confined to that country.

It’s not all bad

And there is good news for shareholders.

For one thing, City analysts are forecasting a dividend recovery for 2014 with a yield of 5.6% pencilled in, and they’re expecting an even better 6.2% by 2015.

RSA also has a new boss, in the shape of the highly respected Stephen Hester who joins after having worked wonders for the recovery at Royal Bank of Scotland.

So what is expected in the results?

Natural disasters

In its Q3 update in November, RSA told us that severe weather in Europe and Canada had been bad for business, and that it was expecting 2013 return on equity to dip below 10%. But net written premiums were up 7% overall, with emerging markets and Canada leading the way with rises of 17% and 14% respectively.

And in its latest update on the Irish shenanigans in January, RSA confirmed its earlier estimate of a £200m hit to profits this year, comprising £72m for the direct impact of claims and financial irregularities plus £128m of capital reserve strengthening.

Earnings slashed

With that in mind, analysts are now predicting a fall in earnings per share (EPS) of more than 50%, to around 4p per share. And the rebased dividend should come in at around 3p per share to provide that 3% yield.

With the shares hammered, is there an oversold bargain to be had here?

Could be cheap

Those 2013 estimates put the shares on a P/E of 23, which is pretty high compared to the FTSE’s long-term average of around 14. But the year is expected to be a one-off, with a big EPS rebound for 2014 taking the P/E back down to under 9 again.

But we’ll need some note of confidence with the results — and with Mr Hester having said he’ll have a recovery plan ready by results day, we might just get it.

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> Alan does not own any shares in RSA Insurance Group.