Barclays has taken its sword to Sabre Insurance Group PLC (LON:SBRE), downgrading its rating for the firm to ‘equal-weight’ from ‘overweight’ although they have marginally raised their target price for the stock.
The bank made the change in a big review of the outlook for European insurance stocks for 2019 in which they upgraded the sector view to positive “as fundamentals are incrementally improving across all sub-sectors.”
READ: Barclays goes value-hunting in motor insurance market; upgrades Hastings Group
That said, they Barclays analysts added, they believe a “quality bias should be maintained given the uncertain geopolitical environment.”
The analysts pointed out that Sabre – which floated almost exactly a year ago - has been the best performing UK motor stock in 2018.
They said this reflected the group’s business model which is well suited for a soft market environment, with Sabre’s management having prioritised margins over growth which means it was able to enjoy better price dynamics in its niche non-standard market.
However, the analysts said that for 2019 they expect UK motor prices to turn back to growth at some point, although they believe a positive earnings impact should only be felt in 2020.
They added that Sabre should also not be completely immune to 2018 softer market developments, with claims inflation running at 5-6% while pricing has been flat at best.
The analysts said while they consider a premium valuation to be appropriate at this point in the cycle, on their 2019 price/earnings of 13.8x they think Sabre appears expensive versus their peers.
Hastings sector laggard
The Barclays analysts said that is true particularly versus sector laggard Hastings - one of the worst performing insurers in the year-to-date - which trades on a price/earnings of 8.4x, hence their upgrade of the stock last month to ‘overweight’ from ‘equal-weight’.
The analysts raised their price target for Sabre slightly to 295p from 288p as they rolled their model to 2019 and added in 2023 forecasts, with the shares currently trading at 257p each, down 4.8% on Wednesday’s close.
For Hastings, the Barclays analysts upped their target price in today’s sector review to 247p from 243p with the shares currently trading at 181.50p, down 0.8% on the day.