Broker tips: Esure, Hastings, DirectPageGroup

Barclays downgraded Esure and Hastings Direct to ‘equalweight’ from ‘overweight’ as it took a look at the UK motor insurance sector.

The bank said UK motor insurers were among the best-performing stocks last year, but it felt there were more miles left in the names as pricing remained above claims inflation.

“We also viewed the larger-than-expected decline in the Ogden discount rate to -0.75% in February 2017 as a positive for the sector as this would prolong the pricing cycle,” it said, adding that it highlighted Hastings and Esure as the prime beneficiaries, with minimal impact to their back books but with the ability to take market share as pricing increases continued.

Following the proposal to cut the Ogden rate from 2.5% to -0.75% on 28 February, all UK motor insurers took reserve charges that impacted 2016 earnings.

Barclays noted that Hastings, Esure and Admiral have rallied after their full-year earnings, and said the stocks are now up with events.

It reiterated its ‘underweight’ rating on Admiral and maintained its ‘equalweight’ on Direct Line. Barclays said Direct Line has lagged the sector over the past 18 months and particularly for the year to date and should benefit from any reversal of the Ogden discount rate.

The bank said RSA Insurance is its best idea among the UK non-life insurers, as it still has benefits from its restructuring to come through while Hastings remains its top pick in UK Motor with the strongest earnings growth at a reasonable multiple.

Barclays kept its price target on Esure at 234p, but upped the target on Hastings to 276p from 247p. Its 337p price target on Direct Line was unchanged.

PageGroup

Credit Suisse upgraded PageGroup to ‘neutral’ from ‘underperform’, lifting the price target to 500p from 400p.

The rating upgrade came as the bank lifted its earnings per share estimates for 2017-19 by 10-12% as momentum improves in underlying markets.

Credit Suisse’s EPS estimate for 2017 was lifted to 26p from 23.6p, while its forecast for 2018 was upped to 28.7p from 26.2p. For 2019, its EPS estimate rose to 32.4p from 29.1p.

CS pointed out that growth rates improved through the first quarter as the company benefitted from headcount investment in markets such as France, improved underlying conditions in end markets and the timing of Easter.

“While the Easter effect will reverse into Q2, the underlying business has regained momentum and should benefit from demand for increasingly scarce resources as well as the consequent wage inflation,” it said.

In addition, the bank argued that profitability is likely to be underpinned by cost savings through 2017 and 2018 and improved consultant productivity.

In the medium term, Credit Suisse remains concerned that the permanent recruitment market will be more challenging than in previous cycles due to technological disintermediation. However, it said that in the near term, the cyclical momentum will dominate.

Upcoming catalysts include the company’s Q2 trading statement on 13 July.