Why Fidelis Insurance Holdings Plunged This Week
Shares of Fidelis Insurance Holdings (NYSE: FIHL) were falling this week, down 12% through Thursday trading, according to data from S&P Global Market Intelligence.
This week's move was likely due to the company announcing a secondary stock offering to the public. But the sale isn't a dilutive equity raise; rather, the offering is by current large shareholders of the newly public stock.
Public company investors never like to see major shareholders cashing out, especially with a stock that trades as cheaply as Fidelis. But the sale might not be an indication that anything is wrong, and thus, the sell-off could be an opportunity for savvy investors.
Are major shareholders seeing danger signs?
On Monday, May 20, Fidelis announced it would offer 9 million shares to the public in a large block sale, good for about 7.7% of the company's total outstanding shares. Then, on Wednesday, the company announced a $16.00 per share sale price for the block, well below the $18.50 stock price to begin the week and below Fidelis' book value per share of $21.22 as of last quarter.
Needless to say, the share sale at such a low valuation of just 75% of book value was probably disappointing to shareholders, or perhaps a bit worrying. Or both.
Could it be that these insiders are fearful of something? At first glance, Fidelis' operating results were pretty strong last quarter, as they generally have been for all major insurers and reinsurers in the present operating environment. Or could it be that these insiders have been spooked by a recent National Oceanographic and Atmospheric Administration forecast predicting a more severe 2024 hurricane season, which also came out this week?
Fortunately, it was likely neither of those things based on who is doing the selling. Therefore, this week's decline could be an opportunity.
Private equity cashes out
Fidelis is sort of an upstart insurance company, having just gone public last year. But the private equity companies that backed Fidelis prior to the IPO appear to be cashing out in tandem. All in all, six private equity funds are selling about 12% of each of their stakes simultaneously in what looks to be a coordinated, synchronized move.
That's good news for a few reasons. First, it isn't executive management selling. Second, private equity funds often have obligations to their limited partners and can come under pressure to continue to "cash out" and distribute profits, especially after one of their private holdings goes public.
So, the selling may have been somewhat of a forced move that these funds had to do, rather than something they wanted to do. While the $16 price is well below book value, it is higher than last July's $14 IPO price.
While Fidelis might see more price pressure due to investors fearing more selling by these private equity firms in the future, the sell-off could be an opportunity for public investors to buy into a very cheap and under-followed insurance stock.
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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
