Broker tips: Hiscox, National Express
By Iain Gilbert
Date: Thursday 09 Mar 2023
(Sharecast News) - Analysts at Berenberg raised their target price on insurer Hiscox from 1,015.0p to 1,285.0p on Thursday, citing a "strong finish to a turbulent year".
Berenberg said Hiscox had a strong end to the year, with the group posting a combined ratio of 90.6% - boosted by $239.0m of reserve releases, which helped drive a 25% increase in underwriting income of roughly $270.0m year-on-year.
The German bank stated this was "a strong result" considering 2022 was "a volatile year", with Hiscox absorbing approximately $183.0m of large loses.
Looking ahead, Berenberg said the outlook remains "very attractive", not only for Hiscox, but for all London Market peers, as rate momentum across property and speciality reinsurance lines was expected to persist, while underwriting conditions were said to perhaps be the best in decades.
"We reduce our group FY 2023-24E GWP and NWP forecasts by 4.9-4.7% and 1.6-2.2% respectively due lower growth in retail. We improve our group FY 2023-24E combined ratio forecasts by 1ppt and 0.5ppt, respectively, due to the better expected profitability across the big ticket lines," said Berenberg, which reiterated its 'hold' rating on the stock.
Liberum downgraded National Express on Thursday to 'sell' from 'hold' and cut its price target on the stock to 115.0p from 155.0p as it said leverage remained its key concern.
National Express said that despite favourable exposure to the mega-trends of decarbonisation and urbanisation, it was not convinced about the risk-reward balance of the group at current levels, given the high levels of leverage.
"Covenant basis gearing is high but has reasonable headroom," it said. "However, the covenant calculation excludes many sources of quasi debt that add to effective leverage for equity shareholders.
Liberum also noted that on a 2023E P/E of 10.7x and EV/EBITDA of 6.5x, National Express was trading well below its pre-pandemic average multiples.
"We acknowledge the upside potential from the group being bid for, with infrastructure funds being prime candidates given four publicly disclosed takeover approaches for UK-listed public transport operators last year. However, we believe the risks are now skewed to the downside, so we downgrade our recommendation," it said.
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