UBS upgrades Esure to 'neutral' after Bain deal

(Sharecast News) - UBS upgraded Esure to 'neutral' from 'sell' and hiked the price target to 280p after the insurer agreed to be bought by private equity firm Bain Capital for 280p a share, as it said there is a high probability of deal success.The bank pointed to the fact that the deal has support from key shareholders controlling nearly 48% of the shares and said there is limited scope for a counter-bid, give an implied 14x 2019E earnings per share valuation, which is at the upper end of the peer group. In addition, it noted limited anti-trust concerns as this appears to be Bain's first investment in the UK insurance market.Should 75% of shareholders be supportive, UBS estimated that the deal could be finalised by early December 2018. If the transaction receives 50-75% support, which it views as unlikely given the support of key shareholders, it would expect completion early January.UBS said Esure's first-half results, which were announced alongside the Bain deal, were weaker than expected, with pre-tax profit 8% below consensus, mostly due to weather losses. However, it said the positive for the market was that as prices slowed, Esure slowed growth somewhat, maintaining a relatively stable gross motor premium year-on-year despite claims deflation."Esure, like peers, has flagged that the market has maintained its discipline. This, along with an expected return to more "normal" claims inflation (3- 5%) towards the end of this year (as reported by Hastings and Direct Line), combined with delays to whiplash reform, should lead to a more stable pricing backdrop."