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RBC Capital Markets downgrades Conduit, slashes price target
(Sharecast News) - RBC Capital Markets downgraded Conduit Holdings on Friday to 'sector perform' from 'outperform' and cut the price target to 425p from 575p. It said the weaker return on equity outturn for FY24 and outlook for FY25 relative to peers impairs Conduit's proposition as a well-timed new business launch in a hard reinsurance market.
RBC said Conduit has outgrown its initial IPO plans by 30% in 2024 with a greater skew towards Property risks.
"This growth seems to have led to excessive natural catastrophe exposure based on the 2024 performance and 2025 outlook, with returns on equity short of its mid-teens target despite peak pricing conditions and high investment returns," it said.
"Earnings volatility is higher than we appreciated and we believe this adds to the start-up discount attached to the shares."
RBC said that taken together, it thinks the risk-reward screens less attractive now.
"Our current valuation is 0.8x 2025E NAV, against its current level of 0.7x," it said. "On balance, a well covered circa 7% dividend yield is a positive."
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