JPMorgan Cazenove gave a lift to shares in Just Group PLC (LON:JUST) on Wednesday, upgrading its rating for the retirement products specialist to ‘neutral’ from ‘underweight’ on valuation grounds after reducing its target price and estimates due to increased finance costs following a recent capital raising.
The US bank trimmed its target price for the FTSE 250-listed firm to 78p from 86p with the shares currently trading at 59.75p, up 2.5% on Tuesday’s close.
READ: Just Group shares advance as its new business sales rise 15% in 2018
In a note to clients, the JPMorgan analysts pointed out: “Our UW thesis on Just Group was centered around 1) limited balance sheet flexibility to absorb macro stresses, 2) higher debt leverage following the recent issuance of debt capital, 3) lower volume and margin guidance, and 4) unattractive dividend yield.”
However, they noted, the year-to-date underperformance of 50% by Just Group shares relative to the insurance sector has prompted them to look at the downside potential for the stock.
The analysts said that looking at the intrinsic value of the back book – that is the present value of back book earnings and back book capital release – they arrive at a base case intrinsic value of Just Group’s back book of £640mln which is higher than the current market cap of around £600mln.
They added: “On top of it there would be some value for new business franchise which to us implies that market is already pricing in concerns on UK macro and relatively weaker balance sheet.”
“Thus,” the analysts concluded, “we see limited downside risk to current share price and move our rating to Neutral.”