Jefferies downgrades Hiscox, cuts target price

Jefferies has downgraded Hiscox to ‘hold’ in the wake of the Supreme Court judgement on business interruption claims.

The bank said it had already added in an additional $88m to the net losses expected in 2020, following last week’s judgement, as well as cutting 2021 and 2022 forecasts by 10% and 3% respectively.

But in a note published on Thursday, it argued: "Although our model adjustments related to 2020 and 2021, we find that it is the 2022 and 2023 forecasts that our forecasts most differ to consensus. In particular, we were surprised by the speed of margin expansion that consensus anticipates.

"As such, we find that our forecasts are 19.4% below consensus in 2022 and 18.1% below in 2023.

"Consequently, though we had hoped that the earnings downgrade cycle was over, this may have been wishful thinking."

It concluded: "Given that the stock has re-rated to 12.0x consensus 2022, and 15.8x our 2022 forecasts, we cut our recommendation to ‘hold’."

Jefferies, which previously had a ‘buy’ rating on the specialist insurer, has also reduced its target price to 1,000p from 1,020p.

Along with the other insurers involved in the test, Hiscox will have to pay out on thousands of business interruption policies after the Supreme Court ruled largely in the favour of the Financial Conduct Authority. Following the ruling, Hiscox increased its estimate for 2020 Covid-19 business interruption by $48m.