Broker tips: Hiscox, Capita
Analysts at Berenberg raised their target price on insurance firm Hiscox from 973.0p to 1,000.0p on Wednesday, stating "all roads lead to profitable growth".
Berenberg stated Hiscox's strong set of interim results, which comfortably beat analysts' expectations by 76% on a pre-tax profit basis, were "a stark reminder" that the London Market as a sub-sector had "significantly more earnings power" than two or three years ago.
Having weathered "the Covid-19 business interruption storm" in 2020 and repositioned its big-ticket portfolio, in Berenberg's view odds were that Hiscox could now "continue on the path of profitable growth".
The German bank said Hiscox management struck a bullish tone during the group's earnings call regarding the outlook for the company, particularly on opportunities in its retail segment and across "the vast and highly fragmented US direct market of $130.0bn".
However, the analysts, which stood by their 'hold' rating on the stock, noted that although they were becoming "increasingly more positive", the market looks to have priced in the recovery to a large extent.
Barclays reinstated coverage of Capita on Wednesday at 'overweight' with an 80.0p price target following completion of the Axelos disposal.
The bank said that in isolation, the sale removes around £30.0m from underlying earnings and pre-tax profit, but much less from net profit, as Capita owned only 51%.
Cash proceeds of £183.0m reduce FY21 net debt to an estimated £430.0m, it said, or 1.7x EBITDA.
"Disposal proceeds (including ESS) now stand at just shy of £500m, well on the way to management's target of £700m by the end of next year.
"Reflecting this, we lower FY21e profit before tax by 19% to circa £125m and FY22e by 13% to circa £177m, with earnings per share falling 11% and 8% respectively; our underlying forecasts are largely unchanged," Barclays said.
Barclays added that there was "considerable" potential upside to its price target if management delivers on its transformation programme.