LONDON (ShareCast) - (ShareCast News) - RBC Capital Markets upgraded Lancashire Holdings to 'sector perform' from 'underperform' and lifted the price target to 625p from 500p.
"Whilst we had always seen Lancashire as a high quality underwriting operation, company-specific issues at the end of 2015 led to our 'underperform' rating. We believe that these issues are now behind us and upgrade," the Canadian bank said.

RBC said it sees less severe premium declines going forward. It pointed out that last year was particularly difficult for the group as premiums fell 30%. A large part of this drop due to energy insurance pricing and premiums coming off materially following the fall in the oil price.

However, RBC reckons pricing in energy insurance is likely to have bottomed out given the price declines seen at the end of 2015 and beginning of this year and some of the large losses seen in the market year to date.

"We now believe that Lancashire will be more willing to defend its premium base than our previous expectation and now see premiums falling less rapidly."

RBC highlighted the departure of a number of senior staff at Lancashire subsidiary Cathedral since the end of 2015 and said the insurer has since hired a number of individuals with excellent industry CVs.

"Although some of the new underwriters will not join the business until later in the year, we expect that Cathedral should be able to defend its premiums to a greater extent than we had previously expected."



Grafton Group's shares dropped on Thursday as Canaccord Genuity cut its rating on the stock to 'hold' from 'buy' and lowered its target price to 595p from 640p.

The builders merchant on Wednesday reported a 8% rise in first half pre-tax profit to £62.8m as revenue grew 13% to £1.2bn, thanks in part to strong growth in the Netherlands and Ireland. However, the company warned of a challenging backdrop in UK merchanting.

"Grafton has a strong balance sheet and is seeing strong recovery in both sales and margins in Ireland," Canaccord said.

"However, the group posted a disappointing UK margin performance and the UK macro outlook remains unclear. While Selco (fixed price format business model within UK Merchanting) is performing well in the UK, the planned step up in Selco branch openings will result in an incrementally higher negative profit impact in the near term."

The broker added that the traditional merchant business models in the UK Merchanting division, mainly Plumbase, are performing less well in a competitive market.

In the near term the broker expects the UK market will remain competitive and the group's organisational restructuring will take time to come through.

However, Canaccord believes over the medium term the group has a "strong position in many of its markets and the shares offer value, assuming it successfully improves the financial performance of its weaker UK businesses".

In the meantime the share price is expected to remain volatile until the macro outlook into 2017 become clear.

Canaccord reduced its estimates for earnings per share in 2016 and 2017 to 41.8p and 42.4p from an earlier forecast of 44.8p and 47.2p, respectively.

"With earnings now expected to be broadly flat in 2017, we do not see why the group should trade at a premium to sector peers and cut our price target to 595p (from 640p) and downgrade our rating to 'hold' (from 'buy')."



The Gym Group's shares were given a lift after Numis reiterated a 'buy' rating and target price of 275p, saying the business has an "impressive record of profitable growth".

"The Gym Group is growing rapidly in the UK with a disruptive model based on an affordable, flexible subscription offer and the intelligent use of technology," Numis said.

"It has established itself as a leader in a vibrant low-cost segment which has revolutionised the fitness market in the UK by both growing the market and taking share from traditional operators."

The company, which listed on the London Stock Exchange in November, reported on Wednesday a rise in half year revenue as it swung to a profit and announced a maiden interim dividend.

In the six months to the end of June, revenue rose 25.1% from the same period last year to £36.1m as adjusted pre-tax profit came in at £4.6m versus a loss of £0.8m.

The group declared a maiden interim dividend of 0.25p per share.

The firm opened six new gyms in the period, taking its total estate to 80. It also saw a 19.4% increase in membership numbers versus the previous year to 424,000.

"Recent interims (31 Aug) were encouraging and confirmed Gym's strong trading momentum. Structural growth opportunities for low-cost gym operators (where Gym is the strong market No.2) continue to be very promising, in our view," Numis said.

"If the consumer environment deteriorates post-Brexit we believe the Group is well placed for increased demand from customers trading down from more expensive gyms."

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