JPMorgan upgrades RSA, downgrades Admiral and Esure

RSA Insurance got a boost on Tuesday as JPMorgan Cazenove upgraded the stock to ‘overweight’ from ‘neutral’ as it took a look at the UK non-life sector.

The bank said its clear top pick in the sector is overweight-rated Direct Line, closely followed by RSA and then Hastings. It noted that RSA has underperformed in recent months, meaning the valuation is now attractive.

“We believe the pricing backdrop in commercial lines may improve following recent natural catastrophe events, and with additional capital return likely to commence from FY18E, RSA's income credentials could be meaningfully improved.”

With relatively less upside to its valuations, the bank downgraded Admiral to ‘neutral’ from ‘overweight and Esure to ‘underweight’ from ‘neutral’.

It said Admiral’s slower growth in the first half was due to a temporary competitive disadvantage and although this will be removed in January, it nevertheless could continue to weigh on growth in the second half. “With no obvious catalysts on the horizon, and only modest upside to our valuation, we move to neutral”.

As far as Esure is concerned, it said the company’s footprint expansion programme is likely to drive strong growth in policy numbers over the coming years, but this remains a stretch target that is somewhat dependent on a favourable pricing backdrop.

“Given that the home market remains challenging, and that the valuation versus peers already looks high (due in part to M&A speculation), we move to underweight.”

On it top pick Direct Line, JPM pointed to strong brands with best-in-class loss ratios that are again delivering growth, a conservative balance sheet, continued potential to reduce costs and an excellent track record of capital return.

The bank cut its price targets on Admiral to 1,980p from 2,100p, Esure to 290p from 300p and Hastings to 350p from 370p. It upped RSA’s price target to 725p from 700p.

At 1055 BST, RSA shares were up 0.8% to 635p, while Admiral was down 1% to 1,896p, Esure was down 2.7% to 267.10p, Hastings was down 0.1% to 316.20p and Direct Line was off 0.8% to 374.90p.