Admiral Group Plc (LSE:ADM) has been upgraded by UBS to a 'buy' recommendation as investor sentiment on the UK motor insurance sub-sector is felt to be too low.
However, the Swiss bank's analysts felt "an inflection point" was seen at the first-half results and now expect motor pricing in excess of claims
inflation March-July to result in a stable 93% booked loss ratio for 2022, improving to 86% by 2024, in line with the 10-year average.
Coupled with signs of distress at peers, margin outlook for Admiral is improved, the UBS analysts reckon.
An inflection such as this "typically results in P/E accretion, which we expect to repeat", they said.
Any bear-case concerns about weaker profit commissions and commutations look already "captured" in consensus analyst forecasts, the analysts added.
Admiral shares are down almost 30% so far this year, underperforming fellow motor insurer Direct Line by 10 percentage points (ppts) and the European insurance sector 20 by ppts.
The stock is changing hands for 15.9 times 2023 earnings, compared to a five-year average nearer 18 times, which the analysts said is "capturing lower growth, but not P/E accretion from better pricing environment".
They have therefore raised Admiral's rating and upped their share price target to 2,365p from 2,169p, offering 9% upside to the last closing price.