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Could Esure Group PLC, Direct Line Insurance Group PLC And Jardine Lloyd Thompson Group plc Be Next After Amlin plc Takeover?

Today’s bid of 670p per share for Amlin (LSE: AML) has caused investors to wonder whether other insurers could be next. Certainly, the bid appears to be rather generous, valuing Amlin at £3.5bn versus a closing valuation of under £2.5bn yesterday. And, with the company continuing to struggle to post positive earnings growth, it appears as though the need to diversify risk and expand geographically means that disappointing short term forecasts do not matter so much to potential suitors. This, then, means that bids for other insurers could be on the cards.

Clearly, Amlin is a successful business that has delivered a superb level of dividends in previous years. And, with an excellent management team and relatively stable business model, its appeal to rivals is very evident.

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However, there are other non-life insurance companies which offer similar attributes. For example, Direct Line (LSE: DLG) trades on a price to earnings (P/E) ratio of just 11.4 and, while its earnings are due to fall by 14% next year, the last few years have shown that the company is capable of delivering upbeat growth numbers as standalone entity.

In fact, Direct Line has posted annualised growth of 12.3% per annum during the last three years and, with its shares offering a yield of 5.8% from a dividend that is covered 1.3 times by profit, it continues to be a superb income play. Furthermore, Direct Line trades on a price to book (P/B) ratio of just 1.7, which indicates that its shares could be acquired at a relatively low valuation.

It’s a similar story with Esure (LSE: ESUR). It currently trades on a P/E ratio of just 13 despite its share price having risen by 17% since the turn of the year. And, like Amlin and Direct Line, it appears to have confidence in its future earnings capacity since it pays out 75% of profit as a dividend, which means that it currently yields 5.7%. Certainly, it has struggled to fully offset the cost of personal injury claims, which put a dampener on its most recent set of results. But, with a sound balance sheet and low valuation, it could be a bid target.

Of course, Jardine Lloyd Thompson (LSE: JLT) has been a very active acquirer in recent years, with its business expanding through a series of purchases since its creation in 1997 (when Jardine Matheson merged with Lloyd Thompson). Today, it remains a very appealing business, with a wide range of divisions operating across the globe. And, with its earnings having risen in each of the last five years, giving an annualised rate of growth of over 10%, JLT appears to be a relatively stable company.

On the face of it though, a bid seems unlikely. That’s because JLT has a P/E ratio of 18.9 and a P/B ratio of 7.4. Both of these figures indicate that it is overpriced but, when it is considered that JLT is expected to increase its earnings by 14% next year, has an excellent track record of growth and could provide diversity to a sector peer, a bid could certainly be possible in the medium term.

So, Direct Line, Esure and JLT all appear to be worth buying and, even if bids do not come along, the returns from all three stocks should be very encouraging.

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Peter Stephens owns shares of Amlin and Direct Line Insurance Group. The Motley Fool UK owns shares of Jardine Lloyd Thompson. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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