RBC reiterates 'top pick' rating on Beazley

(Sharecast News) - Analysts at RBC Capital Markets reiterated their 'top pick' rating on British insurance firm Beazley on Friday, but cut their target price from 700p to 675p, citing a short term negative impact on its earnings.
RBC said Beazley looked like "excellent value" at its current level, with the stock trading at a discount to the five-year average spread to Hiscox.

The Canadian bank expects Beazley to take "decisive action" in 2019 in order to increase its reserve buffer toward the middle of the 5-10% range.

"We expect management to focus on increasing the reserve surplus above actuarial estimate towards the mid-point of the 5-10% versus the 5.6% level reported at the end of 2018," said RBC.

The analysts added that the cost of increasing the reserve surplus towards the middle of the range was approximately $80m on its 2019 combined ratio, but felt that following these actions, they expect investor sentiment to "become more positive".

RBC also said Beazley had shown "strong top-line momentum" so far this year, with premiums up almost 16% in during the first quarter - something it expects to carry on as the company builds out presence in its international specialty unit and continues to grow in the US.

"By increasing its reserve surplus, Beazley will see a short term negative impact on its earnings. As a result, our 2019-21E book value estimates reduce 2.6% on average with our 2019E net income falling 14%. However, with strong potential following the transition year of 2019E we reiterate our 'top pick' rating."

As of 1600 BST, Beazley shares were broadly flat - down just 0.09% at 552p.