Morgan Stanley ups Hastings to 'overweight'

(Sharecast News) - Morgan Stanley bumped up its rating on insurer Hastings on Friday as it took a look at the UK motor insurance market.
The bank noted that investors have largely avoided the UK motor insurers where possible. Pricing remained soft throughout 2019, it noted, while claims inflation increased to about 5-8% for different players under its coverage.

As a result, Hastings underperformed the European Insurance sector by more than 25 percentage points since the start of 2019. The tough backdrop caused earnings and earnings estimates to fall and ultimately resulted in an announced dividend cut last month, it said.

MS lifted Hastings to 'overweight' from 'equalweight' and upped the price target to 220p from 180p.

"Hastings is trading at 10.1x2021 earnings versus Admiral and Direct Line at 18.1x and 12.1x respectively," it said, adding that its price comparison website pricing advantages will allow it to take market share over the long term.

"However, if the UK motor market does start to harden, liquidity constraints could mean that the shares move before investors are able to build a position," MS said, acknowledging that the upgrade may be early and there may be bumps in the road.

MS said there could be limited benefits from management actions on the 2020 loss ratio and the UK motor market could remain soft for longer than expected.

"Hastings reports FY19 results on 27th February, but we don't expect too much of a surprise for 2019 given the new guidance in January."

The bank lifted its price target on Direct Line to 350p from 330p and on Admiral to 2,100p from 1,900p. It rates both at 'equalweight'.