Motor insurance remains an attractive and stable sector to invest in, particularly for income seekers, according to broker Berenberg.
Direct Line Group (LON:DLG) is the broker’s favourite, with the price depressed by concerns over a probe currently underway by financial regulator the FCA.
Berenberg, though, thinks the FCA’s tone is softening and the industry should be able to put through increases in motor premium of up to 9% year-on-year by the end of 2021.
Direct Line has also made progress in its transformation and expense ratio targets, meaning that it remains a good underlying structural growth story.
“All lines, except for travel, showed growth in 2020 for the first time in almost a decade, which is clear evidence that its new strategy is working.”
“Trading on only 11x (times) earnings with a dividend yield of 8% (plus a buyback), we think that DLG remains extremely attractive,” said the broker which ash as target price of 395p against a market price of 314p, up 2.4% today.
Admiral (LON:ADM) is a 'hold' with a target of 2,758p. “There is pressure on the group’s high ROE, which is a large part of the valuation, however, there are no obvious catalysts to warrant a de-rating.
Sabre is also a 'hold' with a target of 264p. The insurer has lost 24% of its policy count over the past three years, but Berenberg expects Sabre’s pricing to become more competitive as the year progresses and estimate that it will grow policy count by 10%.