Broker tips: EasyJet, Beazley
Analysts at Berenberg upped their target price on low-cost carrier EasyJet from 1,120p to 1,150p on Friday, noting that momentum appeared to have improved earlier than they expected.
Berenberg said EasyJet's third-quarter interim statement on Thursday had kicked off the "relative margin outperformance" that it was expecting for the coming year.
The German bank said EasyJet's "resilient late-booked yields" had "surprised" it and stated that it saw "continued evidence of supply restraint" by the airline and the industry as a whole.
"We expect this to support pricing that disproportionately benefits EasyJet versus its low-cost peers," said Berenberg, which also reiterated its 'buy' rating on the shares.
Berenberg said that even if demand slows, it expects pricing to continue to benefit from incremental capacity deceleration - 10% to 3% from 2019 to 2020 for the group and to below 4% in 2020 for the industry as a whole.
"We model EasyJet's 2020 first-half revenues per seat up 2.7% year-on-year, with upside if a sizable airline in EasyJet's markets fails," said Berenberg, which also praised the company for its ability to continue taking "profitable market share" from flag carriers.
Berenberg also said EasyJet's likely near-term fleet mix shift to smaller A320neo aircraft could support free cash generation in 2020, albeit offset by incremental unit costs.
Analysts at RBC Capital Markets reiterated their 'top pick' rating on British insurance firm Beazley on Friday, but cut their target price from 700p to 675p, citing a short term negative impact on its earnings.
RBC said Beazley looked like "excellent value" at its current level, with the stock trading at a discount to the five-year average spread to Hiscox.
The Canadian bank expects Beazley to take "decisive action" in 2019 in order to increase its reserve buffer toward the middle of the 5-10% range.
"We expect management to focus on increasing the reserve surplus above actuarial estimate towards the mid-point of the 5-10% versus the 5.6% level reported at the end of 2018," said RBC.
The analysts added that the cost of increasing the reserve surplus towards the middle of the range was approximately $80m on its 2019 combined ratio, but felt that following these actions, they expect investor sentiment to "become more positive".
RBC also said Beazley had shown "strong top-line momentum" so far this year, with premiums up almost 16% in during the first quarter - something it expects to carry on as the company builds out presence in its international specialty unit and continues to grow in the US.
"By increasing its reserve surplus, Beazley will see a short term negative impact on its earnings. As a result, our 2019-21E book value estimates reduce 2.6% on average with our 2019E net income falling 14%. However, with strong potential following the transition year of 2019E we reiterate our 'top pick' rating."