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Broker tips: Sabre, SSE

Mon 04 October 2021 15:08 | A A A

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(Sharecast News) - Analysts at Berenberg lowered their target price on insurance provider Sabre from 224.0p to 199.0p, stating that when "things do not add up" it's time to 'sell'.

Berenberg stated that since its downgrade of Sabre to 'sell', its peers had adjusted their numbers on the stock. However, the analysts said they "mark their homework as a C-" and implored them to "do better".

While the German bank noted that consensus had moved by about 15% for the next three years, it remains around 20% below consensus for 2022 and 2023 and said it also has concerns that Sabre's pricing discipline was "weakening" given the change in average premium per policy has consistently lagged management's 7.5-8% view of claims inflation since 2014.

Finally, Berenberg added that Sabre was beginning to enter "the world of the uncovered dividend" in 2021, which it said was "unusual" given it should have been one of the company's strongest years due to Covid-19.

"As a result, we estimate 2020 and 2021 will be the peak years for DPS and then the dividend is set to decline," said the analysts.

"For these reasons, we remain sell-rated and believe there is additional 10% downside to our new 199.0p price target."

Analysts at RBC Capital Markets hiked their target price for shares of SSE from 1,800.0p to 1,900.0p on Monday, citing higher commodity prices.

Despite the recent sale of the power group's 33% stake in Scotia Gas Networks, RBC saw fit to raise its estimates for the company's earnings per share across the 2023-25 financial years by roughly 10-20%.

RBC said it saw a "robust" cashflow opportunity from higher power prices thanks to SSE's light hedging on renewable volumes.

Despite generous valuations attached to recent M&A in the sector, a "healthy and rising" power curve and interest from activist investor Elliott, the Canadian bank said SSE share prices performance had underwhelmed.

Even so, RBC remained bullish on the company's prospects and reiterated its 'outperform' rating on the stock.

"We believe investors may be holding out for the November strategy update getting comfort in the longer-term growth prospects and capital allocation decisions," said RBC.

"We regard both the renewables and networks business as attractive despite trading at significant peer discounts. Further, we see longer-term growth attractions for SSE internationally evidenced by the recently announced Japanese offshore wind JV with Pacifico Energy."

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