Broker tips: CMC Markets, Direct Line
By Iain Gilbert
Date: Tuesday 28 Mar 2023
(Sharecast News) - Analysts at RBC Capital Market dropped their target price on financial services firm CMC Markets from 350.0p to 310.0p on Tuesday following the group's recent trading update.
RBC Capital said its 31% cut to earnings per share estimates reflected guidance within CMC's unscheduled trading update, which actually reiterated expectations of 30% growth from the 2022 level to 2025.
However, in light of the fact that growth for 2023 now looks set to be "more subdued", RBC also slightly reduced its NOI forecasts for 2024 and 2025 by 4% and 2%, respectively, leading to earnings per share reductions of 15% and 8%.
"In light of the more subdued income growth now expected in FY23 we also slightly reduce our FY24 and FY25 estimates, with outer year reductions driving a reduction in our price target," said RBC.
"Following an adverse reaction to the news in late trading on Monday, CMCX is trading on 8.9x FY24E P/E, based on our new estimates. This compares to a 5yr historical average of 11.9x. CMCX will next update the market with FY23 results on Tues, 13th June."
Over at Berenberg, analysts slightly lowered their target price on insurer Direct Line from 159.0p to 152.0p on Tuesday, stating the group was "not deserving of a higher valuation".
Berenberg said the stark fall in Direct Line's valuation has led many investors to question whether or not it was an appropriate time to step in.
However, the analysts believe "good reasons" to remain cautious remain, noting that the firm has yet to demonstrate it can grow in UK personal lines despite investing heavily into new pricing systems, that its expense ratio has risen toward its 20% target, and that its capital position remains "precariously thin" during a time of "acute economic uncertainty".
"We forecast Direct Line to generate combined ratios of 101.9%, 98.1% and 97.2% for 2023, 2024 and 2025 respectively, and these weak underwriting returns are not supportive of a valuation above 7x 2024E EPS, in our view," said the German bank, which stood by its 'hold' rating on the stock.
Reporting by Iain Gilbert at Sharecast.com
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