Jefferies International gave a lift to shares in RSA Insurance Group PLC (LON:RSA) on Monday, upgrading its rating for the FTSE 100-listed firm to ‘buy’ from ‘hold’, citing valuation grounds.
The US broker raised its target price marginally to 606p from 603p, with the shares currently trading at 508.60p, up 0.6% on Friday’s close, having shed 6.5% last week.
READ: RSA Insurance sees ‘Beast from the East’ hit its first-half operating profits
In a note to clients, Jefferies’ analysts pointed out that, having de-rated by 26% this year, its sensitivity analysts shows RSA’s implied cost of equity is 11.3% while growth is just 4.2%.
They added: “Given the capital strength (Solvency II 172%) and fact that 2019 earnings are largely unaffected by recent underwriting volatility, we believe that the market overstates the risks to Special Dividends in 2019.”
The analysts said: “Furthermore, in our view, none of RSA's issues have prompted us to materially question our 2019 forecasts and the most recent statement highlighted positive steps to cut unprofitable business."
Going forward, they added, they expect that RSA’s management will reassure on the three Rs - Re-insurance, Re-underwriting, and Reinvesting.
The analysts also noted that as RSA earns the majority of its net income overseas, in Canada and Scandinavia, the group is in effect an exporter, meaning sterling weakness - from Brexit - would be favourable.