RBC Capital ups Hastings to ‘sector perform’ on Sampo deal

RBC Capital Markets upgraded Hastings to ‘sector perform’ from ‘underperform’ on Monday, hiking the price target to 250p from 160p after it agreed terms on a £1.6bn takeover by a consortium led by Finnish insurer Sampo and its biggest shareholder, Rand Merchant Investment Holdings.

RBC noted the deal represents a 47% premium to the closing share price on 28 July, which was the day before Hastings announced the potential acquisition, and a 42% premium to the volume-weighted average of 176p for the six months up to then.

Prior to this deal, Esure was the most recent UK motor insurer to be acquired in August 2018 by Bain. RBC pointed out that at the time, the Esure purchase price was a 37% premium to closing share price, equivalent to a 12.2x 2019 price-to-earnings.

"By applying the same premium and implied P/E multiple from the Esure deal, we thought a valuation of between 215-233p was a reasonable starting point.

"Given the agreed price of 250p is even higher than that, we believe this is a great deal for shareholders."

RBC said it’s also a great deal for Hastings as it will give the insurer more flexibility to fulfil its ambitious growth plans as part of a conglomerate. It argued that as a listed entity writing primarily UK motor insurance, the company struggled to achieve both its growth and profitability targets at the same time, especially during a downturn in the cycle in 2018 and 2019.

"This was a key reason as to why we downgraded Hastings to underperform in October 2019, with Hastings warning on its growth and loss ratio guidance several times in the last two years," it said.