Broker tips: Beazley, Cerillion

(Sharecast News) - Berenberg raised its target price on Beazley from 685.0p to 720.0p on Monday, stating the group was still its "top pick" in the UK insurance sector. Berenberg believes that Beazley's current earnings momentum, stemming from its "highly diversified book", will enable it to absorb losses from Hurricane Ian better than its peers can, and still meet its "high-80s" combined ratio guidance.

The German bank stated that, depending on the quantum of the loss, there could be "some downside risk" to the group's combined ratio but said it was "reassured" by the fact that Beazley had not pulled its guidance, which it reckons suggests it is still achievable.

"Beazley has been the best performing stock in our coverage ytd thanks to strong growth and improving underwriting profitability momentum. We believe losses from Hurricane Ian should be manageable, and in our view, if Beazley keeps its combined ratio guidance intact, it will cement its position as the number one highest-quality insurer in the subsector," said analysts.

"This is because doing so will prove to investors that its margins are structurally more attractive than those of its peers, and that it can deliver them despite significant nat-cat activity. Beazley remains our top pick in London Market."

Analysts at Canaccord Genuity reiterated their 'buy' rating on software and services firm Cerillion on Monday after the group's trading update revealed that full-year consensus expectations had been "conservative".

Cerillion has now pointed to full-year revenues being slightly ahead of consensus estimates of £32.0m and Canaccord Genuity's £30.8m prediction.

The Canadian bank estimates implied organic growth of roughly 20%, while adjusted pre-tax profits were guided to be "materially ahead of consensus" estimates of approximately £10.0m - benefiting mainly from higher staff utilisation rates lifting gross margins on the back of a "hot" demand environment and aided further by foreign exchange tailwinds.

"Overall, we estimate a 10-20% beat of consensus profit expectations, with adj. operating margins likely relatively stable yoy in the low 30s%," said Canaccord.

"The company closed the year with net cash of ~£20m, equivalent to 7% of the market cap and ahead of our £18m forecast. We estimate this implies free cash flow of almost £10m for the year, suggesting an impressive near-100% conversion of adj. net profit."