Berenberg upgrades Admiral, downgrades Direct Line

Analysts at Berenberg changed up their positions on Direct Line and Admiral Group on Monday after taking a fresh look at both insurers.

Berenberg stated Admiral was one of the "highest-quality names" in the European insurance sector and noted that after "a spectacular run" the shares had dropped roughly 20% since August.

As a result, Berenberg now thinks an opportunity has presented itself for investors to begin re-building a position in the name, leading it to upgrade the stock from 'hold' to 'buy' and increase its price target for its shares from 2,895.0p to 3,245.0p.

"While the shares are still at a premium to the pre-pandemic levels, we believe Admiral has warranted its re-rating and the detailed work we have done on reserve releases and profit commissions highlight that we believe the earnings risk is still to the upside going into 2022," said the analysts.

"Moreover, with Admiral trading with an elevated dividend yield between now and September 2021, we believe it is the most attractive way to play to the UK motor insurance space."

Moving on to Direct Line, the German bank downgraded the stock to 'hold' from its previous 'buy' position and lowered its target price for the shares from 396.0p to 295.0p, but stated it still believes the Financial Conduct Authority's review into general insurance pricing practices was likely to be a "manageable event" for the company.

However, Berenberg also reckons that, until there is "clear evidence of this", which could be as late as its 2022 second-half results, Direct Line will continue to trade at low levels and be unlikely to attract new buyers.

"We still regard Direct Line as a high-quality company and expect share price increases over the medium term, but for now we would be holders," said the analysts.