Esure boosted by double upgrade to 'outperform' at RBC Capital

Insurer Esure was boosted by a double upgrade to ‘outperform’ from ‘underperform’ by RBC Capital Markets, which lifted its price target on the stock to 275p from 250p.

The bank said its concerns over the footprint expansion have been answered and it now expects additional service revenues to keep increasing due to more higher premium business being put on the books.

RBC said a higher weighting to ASR versus underwriting profits should provide some protection if motor insurance pricing deteriorates significantly, also noting that the stock is trading at a discount to peers despite a strong growth outlook.

"Following the FY17 results, we are more confident on the ability of Esure to deliver on its footprint expansion plans without risking the business. Whilst combined ratios are similar for the core portfolio and the Footprint 1 portfolio, the total financial contribution per policy from the newer business is far higher due to higher instalment income associated with higher premium business.

"As the business shifts slowly to a higher average premium, we would expect additional service revenues to continue to increase. In addition, we also expect that the company is building some conservatism into the footprint expansion business."

Following the results, the bank upped its 2018-19 net income estimate by 11% to reflect stronger growth than it had modelled and higher ASR based on FY17 and the likely increases as a result of the footprint expansion programme.

Its 2018-19E total dividend estimates were upped by 21%, reflecting a 68% payout ratio.

At 1000 GMT, the shares were up 1.7% to 227.80p.