Sabre Insurance Group PLC

Sabre Insurance Group PLC (LON: SBRE) is a UK based motor insurer that offers diversified products through different distribution channels. The Company owns brands, such as Insure 2 Drive and GO Girl.

The ex-dividend date is 22 April 2021, while the payment date is 20 May 2021.

Rationale for Valuation – Speculative Buy at GBX 245.00

• Sabre continued to focus on underwriting discipline through FY20 and delivered a resilient performance.
• The Group expects to have ample growth opportunities in FY21 and FY22, considering the market dynamics, its lower premium levels, robust capital range, and attractive profitability and dividend potential.
• The Company has decent fundamental metrics as it has maintained a pre-tax ROE (return on equity) above 8.2% for the last five years (FY15 to FY20).
• The debt/equity ratio was nil in the past five years, reflecting that the Company is less leveraged as compared to the industry.
• From the technical standpoint, 14-day RSI stood at 33.08 (nearly oversold zone), which is supporting the upside movement.

Key Risks

• The Company operates in a strict regulatory environment; any change in regulations or government policies could affect the overall business of the Company.
• The falling equity markets and interests' rates could put pressure on the insurers' balance sheets in the short-term.
• Any uncertainty in the financial transactions and losses above the charged premiums could lead to financial and insurance risk.

Financial Highlights for the year ended 31 December 2020 (as on 16 March 2021)

(Source: Company Website)

• For FY20, the combine operating ratio stood at 75.3%, which was in line with long-term target.
• The Group also maintained a robust organic capital generation, and hence, the solvency coverage ratio stood at 203%, while the post-dividend solvency ratio was 155%, which was in line with the preferred capital range.
• Operationally, Sabre also leveraged automation and artificial intelligence to bring operational efficiencies and developed the 'van' portfolio.
• The car insurance market remained challenging as it was heavily disrupted by Covid-19.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Book Value Approach (NTM) (Illustrative)

Conclusion

Sabre Insurance continued a disciplined approach in FY20 and remained in line with its long-term strategy. It maintained good financial result in FY20, and the momentum continued in FY21. The Group also sustained solid dividend flows to our shareholders and generated claims savings with temporary price discounts. In a nutshell, the Company is well-positioned to pursue anticipated growth opportunities. The stock made a 52-week low and high of GBX 217.37 and GBX 313.54, respectively.

Based on resilience, financial performance, strength and simplicity of the business model, decent industry prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Sabre Insurance Group PLC at the current market price of GBX 245.00 (as on 22 March 2021, before the market close at 11:15 AM GMT), with lower double-digit upside potential based on 2.72x Price/NTM Book Value (approx.) on FY21E book value per share (approx.).

XPS Pensions Group PLC

FTSE All-Share listed XPS Pensions Group PLC is a United Kingdom-based holding Company, which is involved in pensions actuarial, consulting, and administration business.

On 16 July 2021, XPS expects to publish its annual report for FY21.

Investment Rationale – Speculative Buy at GBX 122.50

• From a technical perspective, 14-day RSI (41.06) is supporting an upside potential.
• Despite the challenging trading conditions, XPS has maintained the interim dividend post reporting the significant growth in revenues and EBITDA.
• Over the past four years (FY16 – FY20), the Company’s revenue surged from GBP 51.77 million in FY16 to GBP 119.80 million in FY20. Compounded annual growth rate (CAGR) stood at 23.34%.
• It has reduced the leverage after the strong operating cash-flow conversion, which resulted in a net debt/adjusted EBITDA of 1.78x (30 September 2019: 2.34x).

Risk Assessment

• The economic downturn can impact operational and financial performance as it leads to significant market volatility, currency changes, and interest rates.
• The Company could face aggressive competitor pricing, major technological innovation, and change in consumer demand.
• Moreover, increasing remote operations during the pandemic can expose information security at risk from cyber-attacks.

Interim results for the half year ended 30 September 2020 (as on 26 November 2020)

(Source: Company Website)

• During H1 FY21, revenue surged by 9% year-on-year, as the Pensions Actuarial and Consulting revenues grew for a consecutive second half.
• The adjusted EBITDA increased by 11% year-on-year, while adjusted operating profit surged 8%.
• The Company maintained the interim dividend of 2.3 pence (H1 FY20: 2.3 pence) per share.
• It has maintained a strong cash generation with an operating cash-flow conversion of 134%, resulting in a net debt/adjusted EBITDA of 1.78x as of 30 September 2020 (H1 FY20: 2.34x).

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Book Approach (NTM) (Illustrative)

Conclusion

The Board is encouraged by the performance of H1 FY21 and anticipating that the full-year results will be in line with management expectations. XPS has been performing resiliently despite the Covid-19 pandemic with a high degree of visibility on revenues as it expects demand for additional services to continue as pension trustees have been seeking advice and support throughout the pandemic. Further, XPS is also expecting to gain further market share with new opportunities lying in Pensions Actuarial & Consulting domain. Overall, it is well-placed to emerge strongly from the crisis and take advantage of the favourable end-market dynamics. Stock 52 week High and Low were GBX 145.00 and GBX 103.00, respectively.

Based on the resilient financial performance, robust cash conversion, long-term prospects, and valuation conducted above, we have given a “Speculative Buy” recommendation on XPS Pensions Group PLC at the current market price of GBX 122.50 (as on 22 March 2021, before the market close at 11:56 AM GMT) with lower double-digit upside potential based 1.99 Price/NTM Book (approx.) on FY21E Book Value Per Share (approx.).

*All forecasted figures and Industry/Peer information have been taken from Refinitiv, Thomson Reuters.

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

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