Credit Suisse initiates Hastings at 'outperform'

Credit Suisse initiated coverage of insurer Hastings at 'outperform' with a 290p price target.

The bank said it expects to see top-line driven operating earnings improvement, while debt and capex reductions should underpin growing returns to shareholders.

It forecasts double-digit dividend growth over the medium term.

CS noted that Hastings is aiming to reach a 3 million policy count by 2019 versus 2.35m as of FY16, and said this target is comfortably attainable, aided by motor industry pricing tailwinds. The bank forecasts policy count and operating profit to grow at a three-year compound annual growth rate of 9%.

"We expect strong cash flow growth to be driven by lower debt and interest costs and reduced capital expenditure. Accordingly, we forecast free cash flows (exclusive of dividends) to grow to c3x the size of those in 2016. This should enhance capacity for additional capital returns to shareholders over the medium term."

Credit Suisse added that the current valuation gap of more than 30% versus peer Admiral is excessive given Hastings' superior dividend and earnings growth prospects.

At 0908 GMT, the shares were up 4% to 260.10p.