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Should You Buy Old Mutual plc Or RSA Insurance Group plc?

It’s been a disappointing year for shareholders in both Old Mutual (LSE: OML) and RSA (LSE: RSA), with both insurance companies seeing their share price drift mildly into the red.

Indeed, RSA is down 4% year-to-date and Old Mutual has fallen by 0.5% over the same time period. However, could the future be a lot brighter for the two companies and, if so, which one should you buy?

Results

oldmutualThis week saw both companies release results. While the market reacted relatively positively to RSA’s results, Old Mutual saw its share price fall by as much as 4% following their release. That’s because the economic fallout from mining strikes across South Africa is set to have a negative impact on its full-year results, while higher than expected inflation is also hurting consumer confidence in the country.

Meanwhile, RSA continues to make steady progress towards restructuring its business, although it continues to be hit hard by a number of negative one-off items. Clearly, neither company is firing on all cylinders right now.

Growth Potential?

However, that doesn’t mean that things won’t pick up for both companies. Indeed, Old Mutual is forecast to deliver earnings per share (EPS) growth of as much as 10% next year, which is above the mid-single digit average of the wider index. RSA, meanwhile, is expected to deliver earnings that are 8% lower next year, although this would be a relatively impressive result given the difficult circumstances that current CEO, Stephen Hester, inherited when he took charge in February.

Looking Ahead

RSARSA appears to have right strategy and management team with which to make a strong comeback. RBS was, for example, in far better shape upon Stephen Hester leaving than it was when he joined, and it appears as though he is pursuing a similar strategy of selling non-core assets off and focusing on lower risk, higher return activities. Despite this potential, though, RSA trades on a price to earnings (P/E) ratio of just 10.9, which seems to indicate good value when the FTSE 100 has a P/E of 13.4.

However, Old Mutual appears to offer even better value for money. Its shares trade on a P/E of just 10.3 and, better still, offer a yield of 4.6%. This also compares favourably to RSA, which yields just 2.6%.

As a result, although both companies are experiencing difficulties at present and offer great value right now with huge potential, Old Mutual seems to be the better buy. That’s because it is cheaper, has better growth prospects, more income potential and the problems it is facing are not as severe as those of RSA. As a result, it seems to be a better prospect than RSA for longer term investors.

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Peter Stephens owns shares of Old Mutual, RSA and RBS. The Motley Fool has no position in any of the shares mentioned.