Canaccord Genuity starts Personal Group at 'buy'

Canaccord Genuity noted that in H1, roughly 80% of group revenues were recurring in nature and said retention rates in insurance were "impressive" at over 80%.

The Canadian bank also pointed out that following the adverse impact of the Covid-19 pandemic, particularly on new insurance sales through the group's differentiated face-to-face model, the business now continues its return to profitable growth.

"Our forecasts imply an EPS CAGR of 22% over the period FY23-26E. We expect an 80% payout ratio going forward (long-run average: 86%), resulting in an 8.0% yield for FY24," said Canaccord.

At this stage, Canaccord believes price-to-net asset value to be the most appropriate valuation methodology, given the dominance of Personal Group's insurance earnings. If management executes on its aspirational plan, resulting in increased contribution from its software-as-a-Service business, the analysts said they could consider a sum-of-the-parts approach as being equally appropriate.

"We apply a 2.0x target P/B multiple applied to FY24E NAV. We justify the multiple based on the average of FY25E-26E ROE, which is 19.3%. The implied upside to our 209p target price is 28% and TSR is 36% which supports our 'buy' rating. Our target price implies price-to-earnings multiples of 14.3x in 2024E falling to 11.0x in 2025E."

Reporting by Iain Gilbert at Sharecast.com