Deutsche Bank upgrades Admiral, Aviva to 'buy'
By Michele Maatouk
Date: Thursday 05 Dec 2024
(Sharecast News) - Admiral shot higher on Thursday as Deutsche Bank upgraded the stock to 'buy' from 'hold' and lifted the price target to 3,020p from 3,000p saying it was becoming more positive on the wider UK motor insurance space, particularly for those that are larger players such as Admiral, and those that are more disciplined.
"With tailwinds to come through to earnings over 2024-2026 from UK pricing of 2023, along with improvements in the group's international businesses and the addition of the RSA policies in home and pet, we view the group as strongly positioned to keep growing the top and bottom lines," it said.
"Trading on a 2025 price-to-earnings of circa 13x versus a historic average closer to the circa 16x, we see re-rating potential."
At 1335 GMT, Admiral shares were up 2.4% at 2,688p.
In a broader note on European and UK insurers, Deutsche also upgraded Aviva to 'buy' from 'hold' saying there is "more to come" regarding performance in 2025.
"We like the fundamentals at Aviva: (a) we estimate it will grow the EPS by 12% compound annual growth rate per annum over 2024-2026, (b) pricing actions of 2023-2024 are earning through into the General Insurance combined ratio, with niggles around Canada looking to be behind us, (c) operational improvements seem to be ongoing - e.g. being seen in the Wealth flows, acquisition synergies, and top-line growth momentum," it said.
Separately, DB said it likes the Aviva bid for Direct Line. It sees this creating shareholder value from higher earnings along with future free cash flow growth.
DB lifted its price target on Aviva to 545p from 535p.
The bank also upgraded Just Group to 'buy' from 'hold' following the company's "surprise" £1.8bn bulk annuity buy-in deal in November - its largest so far - which it believes has shifted the growth potential even further for the group.
"A deal this size opens the doors for Just to fight for more mid-to-large deals, which will boost its sales (and where there should be upside to market expectations for 2025-2027e), profits, and contractual service margin growth too," DB said.
The bank said it was changing its valuation methodology for the company, moving away from a net cap-gen discounted cash flow approach to an earnings growth approach, which no longer penalises Just Group for putting money into growth.
From this, it lifted its price target by 26% to 170p. DB said while there are question marks around investment exposure - particularly with the likelihood of spreads widening - this is well contained for Just Group, which has a solid buffer and minute historical default experience.
Deutsche Bank downgraded its stance on M&G to 'hold' form 'buy' and cut the price target to 230p from 240p. This is based on its view that the tailwinds from moving to IFRS 17 - helped by the higher interest rates in 2023-2024, but which are expected to fall in 2025 - won't be repeated in the earnings from 2025.
"Elsewhere, whilst work is being put in to increase flows internationally, this feels slow-moving," it added.
DB said that while it believes the debt leverage could reach the target 30% towards end-2025, it does not see the dividend growing at a more attractive rate than the current low single digits growth profile until 2026.
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