16th Nov 2022 18:06
(Alliance News) - Berenberg on Wednesday said shares in insurance stocks have been oversold recently, with the investment bank highlighting Admiral Group PLC, Beazley PLC and Direct Line Insurance Group PLC as "stocks to take a look at".
The German bank said it asked readers to participate on what it called "insurance games", eight tasks to assess investor sentiment towards the sector.
"Our broad thinking was that sentiment can often cloud judgement and, through these eight games, we have attempted to bring to light opportunities for overbought or overlooked stocks," Berenberg explained.
Berenberg found there was a preference for motor insurers, suggesting that shares in Admiral and Direct Line have been oversold.
Berenberg added: "However, the current inflationary trends have given rise to earnings risk. The topic of earnings risk."
Shares in motor insurers have been among the worst-performing on the stock market year-to-date, as investors assess claims inflation fears.
Admiral shares have fallen 35% since the end of 2021, while Direct Line is down 27%. In London on Wednesday, Direct Line fell 1.9% to 204.98 pence, while Admiral lost 1.3% to 2,046.00p.
In one outcome of Berenberg's eight insurance games, Direct Line came out a winner, amid its expected 15% return on equity in 2023 and 2024, according to the German bank's estimates. In game eight, Admiral was the "clear winner".
"We believe investors will be surprised that Admiral consistently makes more profit for every GBP1 of premium written than any of its Nordic peers and yet trades on a cheaper valuation," Berenberg added.
Elsewhere in the insurance sector, Berenberg noted there is still "upside" to Beazley's stock. The insurer's shares have risen 30% since the end of 2022. The stock closed down 3.3% at 604.50p each on Wednesday.
Berenberg added: "During Covid-19, Beazley traded to a low of [around] 300p. However, since then, the group has transformed its cyber business and taken full advantage of the hardening market in reinsurance and speciality lines.
"In contrast to most of the stocks we are discussing in this note, Beazley has had an excellent run and is the best performing European insurer YTD, up 35%. Having said that, our games suggest that investors still see plenty of value in Beazley – and hence this stock is still worth looking at, in our view."
By Eric Cunha; [email protected]
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Related Shares:
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