RBC Capital has downgraded Conduit Holdings Ltd (LSE:CRE) to 'sector perform' from 'outperform', citing concerns over its profitability.
The bank has also cut its price target for shares in the reinsurer from 575p to 425p, highlighting weaker-than-expected returns on equity and exposure to natural catastrophe losses.
Conduit reported a return on equity of 12.7% for 2024, but RBC noted that this was largely boosted by accounting adjustments.
Without these, the figure falls to 7.4%, well below its mid-teens target, RBC noted. For 2025, profitability is expected to remain under pressure due to estimated California wildfire-related losses of $100-140 million, it added.
The Canadian bank also flagged Conduit’s high exposure to natural disasters, which led to larger-than-expected losses in 2024.
While the company remains well-capitalised, its earnings volatility and lower profitability compared to peers have made the stock less attractive.
Despite maintaining a well-covered 7% dividend yield, RBC sees limited upside in the short term.
The shares were down 0.5% at 384p.