RBC Capital downgrades Lancashire, upgrades Hiscox

(Sharecast News) - RBC Capital Markets downgraded Lancashire Holdings to 'underperform' from 'outperform' on Tuesday and cut the price target to 600p from 750p as it argued that consensus was at risk. "Diversification has increased materially since the last down cycle, but we would still characterise the book as more exposed to big ticket risks than the other London Market insurers," the bank said.

"We forecast a bigger decline in volumes than at peers, albeit with margins likely to be supported in part by lower retro and reinsurance costs, being a bigger buyer of cover than the rest of our coverage."

RBC said that while the stock's multiples are undemanding, its preference is for peers.

"We note that Lancashire is trading just above its long-term average on a price to tangible book basis of 1.7x," it said.

"Earnings multiples are undemanding, but we think it will be difficult to justify an earnings re-rating as earnings decline, or one that would take the price to tangible book value much above the current trailing multiple of 1.8x."

In a broader note on the reinsurance sector, RBC upgraded Hiscox to 'outperform' from 'sector perform' and hiked the price target to 1,600p from 1,400p.

It said Hiscox is a much better diversified business than its peers. Its Retail operations are more than 50% of the business, which RBC forecasts to grow more quickly than its London Market and Reinsurance operations.

"We were cautious previously, but the narrowing of the multiple gap, and strong results at H1 25 with raised capital return expectations, mean that our relative preference has changed in Hiscox's favour," it said.

"Sector M&A has also highlighted this potential backstop with the shares trading on only circa 1.8x trailing TNAV."

RBC kept Beazley at 'outperform' but upped the price target to 1,100p from 1,000p.

It said Beazley has the best return on equity track record in the sub-sector and grew consistently through the last downcycle, albeit with more volatility than peers.

"Beazley operates the largest Lloyd's syndicate, has grown at its US on-shore carrier and has an extensive network in Europe, which is a targeted area for growth in Specialty lines, on top of Cyber, where it is a global leader," it said.

"Even on our below-consensus forecasts assuming flat EPS, multiples looking appealing on 1.6x FY25E TNAV (versus the 1.5x multiple Radian is paying for start-up Inigo) and 9x forward earnings."