Why RSA Insurance Group plc Could Be A Super Recovery Play

RSA Insurance (LSE: RSA) has experienced a difficult six months, with shares in the UK-listed insurance company falling by over 22%. The key reason for this has been allegations of accounting irregularities at its Irish subsidiary, which has meant that shares have significantly underperformed the FTSE 100. It is flat over the period.

However, RSA could turn out to be a great recovery play. Here’s why.

Change At The Top

Former RBS Chief Executive, Stephen Hester, is now in charge at RSA. This should give investors in RSA a boost, simply because he did an extremely good job at turning RBS around. When he joined the bank it was in dire straits; it was hugely loss-making and there seemed to be little, if any, light at the end of the tunnel.

This year, however, RBS is forecast to make a profit and, should it do so, will owe that in no small part to the job that Stephen Hester undertook while at the bank. With experience in turning around troubled businesses, RSA seem to have got the right man at the helm to oversee changes, which clearly bodes well for investors.

Strong Growth Prospects

Although RSA made a loss in 2013, it is forecast to immediately return to profitability in 2014 and 2015. Indeed, it is forecast to deliver earnings per share (EPS) of 7.95p in 2014, which is higher than that achieved in 2012, when EPS was 7.81p. Furthermore, RSA is expected to deliver EPS growth in 2015 of 4%, which is in-line with that of the wider index and shows that it could return to normality relatively quickly.

Great Value

With shares having experienced a challenging period, they now appear to offer very good value for money. For instance, shares in RSA currently trade on a price to earnings (P/E) ratio of just 11.6, which is considerably lower than that of the FTSE 100, which has a P/E of 13.3.

While there may be a few ‘lumps and bumps’ along the way, RSA appears to be well-positioned to mount a strong recovery. It has a Chief Executive with very relevant experience, is forecast to return to profitability this year, and trades on a relatively attractive P/E ratio.

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Peter owns shares in RSA and RBS.