Chesnara PLC (LSE:CSN)’s decline in economic value (the rolled-up value of its policies) should “unwind over time”, said Peel Hunt, which kept its 300p target price and held its ‘add’ position on the stock.
The broker believes that the 18% decline in 2022 economic value to £512mln should unwind as “financial market performance reverts back to the mean.”
The insurance company’s solvency ratio of 197% is “very healthy” and ahead of the target range of 140% to 160%.
Chesnara, alongside healthy cash generation, a decline in capital requirements, and the issue of £200mln of Tier 2 debt, was able to increase its dividend by 3% to 23.3p per share.
Recent acquisitions, the broker said, have also increased the value of its assets under management by 16% to £10.6bn, while the company noted there is roughly £100mln available for further deals.
Peel Hunt said further catalysts for the stock include “the delivery of capital synergies” and “an active M&S strategy”, which should support long-term cash generation and economic value.
“Despite equity market volatility, we believe that as performance reverts back to the mean, this should deliver an uplift in economic value over time,” the broker said.