Broker tips: Admiral Group, Reckitt Benckiser

(Sharecast News) - Analysts at Berenberg lowered their target price on insurance firm Admiral Group from 2,688.0p to 2,543.0p on Monday but stated its defensive model equalled a "premium valuation". Berenberg said UK motor insurance remained "at the bottom of the pecking order" for many investors when looking at the sector, and noted that many will say it was "still too early" to become bullish on the space.

However, Berenberg thinks there is "good reason" to be optimistic about Admiral and, with prices adjusting quickly in the UK, it estimates the Association of British Insurers will report a quarter-on-quarter price increase of 7% in the first quarter - implying year-on-year growth of 21%.

The German bank believes the market also underappreciates the strength of Admiral's reserving position, which will provide strong support to earnings in 2023 and beyond, and also thinks Admiral will likely announce the sale of its US operations in 2023 - a key catalyst to the stock.

"Admiral has shown hugely defensive earnings which are supported by one of the lowest-risk balance sheets in the sector; in our view, this makes for a very attractive investment proposition, particularly during times of heightened financial market volatility. Admiral trades on 13.5x 2024E EPS and offers a 2023E dividend yield of 6.0%. We see 25% upside to our new price target," said Berenberg.

Analysts at Deutsche Bank lowered their target price on multinational consumer goods company Reckitt Benckiser from 6,500.0p to 6,250.0p on Monday.

Deutsche Bank stated it expects further uncertainty over the level of share loss to Abbott in the US infant formula market and thinks downside risks in the cough, cold and flu market will hold back valuation.

The German bank said it was "very difficult" to re-rate these high gross margin businesses currently but updated its factory activity trackers for both Abbott and Reckitt, which imply share loss and a "modest" de-rating.

"We make some updates to our Reckitt forecasts ahead of the company's Q1 trading update on 26 April. Our FY 23E like-for-like growth edges up from 2.6% to 3.0% and we leave our FY 24E like-for-like growth at 3.8%," said DB.

"We leave our FY 23E margin at 23.4% and our FY 24E margin at 24.0%. We forecast Q1 like-for-like growth of 5.1%. After the impact of FX, we see our net FY 23E earnings per share declining by -1.3% to 333p and our FY 24E EPS falls by -1.8% to 359.0p."

Reporting by Iain Gilbert at Sharecast.com