Hastings Group Holding PLC (LON:HSTG) shares gained as JP Morgan Cazenove upgraded its recommendation to ‘overweight’ from ‘neutral’ and hiked its target price to 265p from 240p.
In a note on insurers, JP Morgan said Hastings possesses the same key attributes that helped establish Admiral as a best-in-class motor insurer, yet it trades at a discount to peers.
"This in our view is partly a reflection of its leverage to the UK motor cycle (challenging at this point), but over time we see scope for a rerating, alongside continued market share gains," it said.
"In particular we highlight: 1) its expense ratio advantage; 2) its competitiveness on new business (particularly relevant ahead of the FCA market study); and 3) its underwriting track record, which we see as increasingly strong."
Hastings designed for the price comparison website era
The investment bank said Hastings is a relatively young company that has the advantage of being designed for the price comparison website era with a largely outsourced IT platform that has required little customisation.
“As a result it has avoided the legacy costs seen elsewhere, and hence maintains a very competitive expense ratio,” the bank said. “We see this as an important structural advantage.”
Overall, JP Morgan views Hastings as a “long-term winner” in the sector and sees a positive risk/reward, given the relative valuation.
In morning trading, shares in Hastings were up 1.8% to 222.6p.
JP Morgan upgrades Saga, downgrades Direct Line
Alongside its upgrade of Hastings, JP Morgan lifted its rating on Saga PLC (LON:SAGA) to ‘neutral’ from ‘underweight’ as it believes the market is now aware of the challenges facing the company, suggesting a more balanced risk/reward.
Saga shares rose 5.6% to 60.2p.
"This is in part a reflection of the limited upside to our valuation, but also an acknowledgement of industry level uncertainties: 1) pricing vs. claims inflation; and 2) potential regulatory intervention," it said.
"Hastings is now our only ‘overweight’ in the motor sector as we see it as relatively well positioned, and elsewhere we highlight Beazley and Hiscox as core overweights in UK non-life."
Shares in Direct Line were little changed at 341.9p.