Berenberg reiterates 'buy' rating on Hastings, lowers target price slightly
Analysts at Berenberg slightly lowered their target price on insurance group Hastings 's shares from 228p to 221p on Friday, noting that they expected the pricing cycle to turn and leave the company "well-positioned to benefit".
The German broker acknowledged that investors seemed to be wondering whether Hastings' recent earnings downgrade would be the last in the current cycle and in its opinion, the answer to the question would depend on the pricing environment in the second half of 2019.
If pricing momentum continued to build in the back half of the year, Berenberg expected Hastings to "scrape in below the top of its loss ratio guidance range". However, if soft market conditions persisted, the analysts warned that guidance was "likely to be missed".
"As such, we expect that market pricing will ultimately be the driver of short-term performance. In the longer term, we expect fundamentals will win through," said Berenberg.
"The pricing cycle will turn and Hastings is well-positioned to benefit."
Berenberg also said that Hastings had "a cost and technological advantage" over peers, further highlighting how new operational initiatives coming onboard were "already producing results".
"Therefore, we maintain our 'buy' recommendation but accept that short-term moves are likely to be led by the movement in pricing data reported in H2."
Touching on the insurance industry as a whole, Berenberg said it expected pricing to begin to harden in the second half.
"Industry profitability is reaching breaking point, claims inflation drivers look set to continue, reserving buffers are reducing and the lower-than-expected Ogden rate adds to the inflationary environment.
"If such an environment materialises, Berenberg expects Hastings to be "the major beneficiary."