Sabre Insurance Group PLC

Sabre Insurance Group PLC (LON: SBRE) is a FTSE All-Share listed UK based motor insurer that offers diversified products through different distribution channels.

The FY22 results are scheduled for release on 22 March 2022.

Investment Rationale – SPECULATIVE BUY at GBX 177.00

• New Contract: On 10 November 2021, SBRE signed an agreement with MCE Insurance, for underwriting the policies issued by MCE Insurance Ltd.
• Strong Financial Position: Sabre Insurance continued to hold no external debt, and therefore, the Group's capital was considered 'Tier 1' under Solvency II.
• Improved Market Dynamics: British new car registrations increased to 115,706 new cars in November 2021, up from 113,781 in October 2021. It should support the requirement for motor insurance as well.
• Technical Indicator: From a technical standpoint, 14-day RSI (~39.06) indicates that the stock price is still close to the oversold zone, while the price is trading between the lower and the middle Bollinger bands.
• Undervalued Multiples: As per valuation metrics on forward 12-month basis - EV/Sales, Price/Earnings, and Price/Book multiples of the SBRE are currently lower as compared to the average of the Insurance industry.

Key Risks

• Covid-19 Pandemic: The ongoing threat related Omicron variant can lead to another set of restrictions and can exacerbate inflation and supply chain issues. It can eventually impact the new car sales and motor insurance.
• Market Slump: The UK motor insurance premium plunged 16% in the third quarter of 2021, reflecting the impact of lockdown restrictions.

Q3 FY21 Trading Update (for the period to 30 September 2021, as on 14 October 2021)

• Resilient Premium: During 9M FY21, the gross written premium was £126.7 million, while the net earned premium stood at £108.8 million.
• Challenging Market Dynamics: The market level demand remained subdued due to the soft pricing environment.
• Financial Position: The Group maintained a strong balance sheet with no debt obligations.

Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Conclusion

Sabre showed resilience during the challenging time and remained confident about the medium-term and longer-term growth outlook. Moreover, the Company has a strong capital base to support an attractive dividend policy despite the market uncertainties. As traffic has returned post lockdown easing, it shall give boost to the insurance premium. Moreover, Sabre expects to deliver growth in FY22 with the expansion of addressable market. The stock made a 52-week High and Low of GBX 290.00 and GBX 173.20, respectively. 

Based on the solid underwriting profitability, higher solvency coverage ratio, strong pricing trend, coupled with the favourable valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Sabre Insurance Group PLC at the closing market price of GBX 177.00 (as on 21 December 2021), with lower-double digit upside potential based on 16.75x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Netcall PLC

Netcall PLC (LON: NET) is a FTSE AIM All-Share listed provider of intelligent automation and customer engagement software.

Rationale for Valuation – SPECULATIVE BUY at GBX 68.00

• Growth Drivers: Netcall has solid recurring revenues, robust balance sheet, excellent cross-selling opportunities, and growing pipeline.
• Financial Growth: During FY21, revenue and profit before tax jumped 8% and 98% year-on-year, respectively.
• Solid Foundation for Growth: Netcall has cloud net retention rate of 116%, new customer wins, new products launched, and improved visibility of future revenues.
• Technical Indicator: From a technical standpoint, NET’s stock price is trading around the lower Bollinger band, while 14-day RSI (~31.02) reflecting an oversold scenario.

Key Risks

• UK GDP: The UK economy witnessed a disappointing GDP growth of around 0.1% during October 2021, less than the estimates of 0.4%.
• Economic Challenges: Weak industrial date, global shortage of semiconductors, supply constraints, tightening of monetary policy can hamper the business prospects.

AGM Statement (as on 16 December 2021)

• Trading Momentum: Following the strong performance in FY21, Netcall continued the strong trading momentum in H1 FY22.
• Demand: It witnessed robust demand for its cloud solutions across its core sectors of financial services, healthcare, and public sectors.
• Pipeline: The pipeline of opportunities is growing with Netcall's Liberty platform, new business wins and ongoing migration to cloud solutions.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative) 

Conclusion 

The Board of Netcall appeared confident of sustained success given the market opportunities, solid recurring revenue, and strong underlying demand. The 48% increased in dividends during FY21 reflected confidence in a healthy pipeline of new business and a growing cloud business revenue. Moreover, it has a cash generative business model with enhanced profitability and revenue visibility. The stock made a 52-week High and Low of GBX 89.00 and GBX 49.00, respectively.

Based on the resilient financial performance, robust profitability margins, dividend increase, we have given a “SPECULATIVE BUY” stance on Netcall PLC at closing market price of GBX 68.00 (as on 21 December 2021), with lower-double digit upside potential based on 50.43x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

*Dividend Yield may vary as per the stock price movement.

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