Peel Hunt cuts Esure to 'hold', says recovery in motor business will take time

Esure shares were on the back foot after Peel Hunt downgraded its stance on the stock to ‘hold’ from ‘buy’, saying the company’s performance has disappointed this year relative to some of its peers as it struggled to raise prices above claims inflation.

It said recent evidence suggests Esure’s Motor rate increases are starting to align with claims inflation, but this will not be sufficient to pull the motor business out of a core underwriting loss in 2015 or 2016.

“We increase our target price from 255p to 260p on the back of a higher value for Gocompare, offering 2% upside but lower our recommendation…given the delay in the recovery of the insurance business,” said Peel.

The brokerage cut its 2016 earnings per share estimate by 13% to 15.3p.

Still, it said an attractive dividend yield of 5% and a discounted – albeit justified – valuation relative to the sector will underpin the share price.

At 0908 GMT, Esure shares were down 2.1% at 248p.