Sabre Insurance Group Plc – Operating with a strong balance sheet

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.

On 16 March 2021, the Company will announce the 2020 full-year results.

Rationale for Valuation – Speculative Buy at GBX 235.00

• The Company seems to be well-positioned and is giving consistent performance, with an attractive dividend for the full-year and current solvency ratio of 186%.
• Gross Written Premiums picked up in Q3 FY20, with strong organic capital generation and robust balance sheet.
• The Company has decent fundamental metrics as it has maintained a pre-tax ROE (return on equity) above 8% for the last two years.
• The debt/equity ratio was nil in the past three years, reflecting that the Company is less leveraged as compared to the industry.
• From the technical standpoint, 14-day RSI stood at 30.41 (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.

Trading Update (for the nine months ending 30 September 2020, as on 13 October 2020)

• Despite the COVID-19 pandemic and related disruption, the Company has continued to perform well.
• The Company has increased the prices of premium to cover underlying claims and other cost inflation of approximately 10% per year (which are fully covered).
• The Company has shown a strong organic capital generation, with a solvency coverage ratio of 186% as at the end of September 2020 (which was higher than the target range of 140% to 160%).
• SBRE has a strong balance sheet with no debt obligations.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

For FY20, the Company expects a combined ratio to be close to the long-term mid-70%'s target. On a year-on-year basis, the gross written premium for FY20 is anticipated to be in-line with guidance, with a likely outcome of approximately 10% lower year-on-year. The Company witnessed a higher policy volume than anticipated and also achieved high average premiums. It also expects an attractive dividend for the full year, with an increase in current solvency ratio from the target 140% to 160% range. Overall, the Company is giving a consistent performance, with a strong balance sheet and expectations set at the time of H1 FY20 results. The stock made a 52-week low and high of GBX 196.27 and GBX 333.66, respectively.

Based on decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Sabre Insurance Group at the current market price of GBX 235.00 (as on 19 October 2020, before the market close at 2:30 PM GMT+1), with lower double-digit upside potential based on 2.50x Price/NTM Book Value (approx.) on FY20E book value per share (approx.).

Saga Plc - Good progress in the first half and robust response to COVID-19

Saga Plc (LON: SAGA) is an FTSE All-Share Company, which provides products and services related to general insurance, personal finance, package, and cruise holidays.

Rationale for Valuation – Speculative Buy at GBX 124.06

• Recently, the Company has consolidated the shares. This move was designed to ensure that the Company is well-positioned to strengthen the business in the short-term.
• The Company has confirmed a £150 million equity raise (before issue costs) to further strengthen the balance sheet and improve liquidity.
• The Company has decent fundamental metrics as it has maintained a Gross margin above 45% for the last three years.
• As per the valuation metrics, EV/Sales, Price/Earnings. Price/Cash Flow, Price/Book Value and EV/EBITDA multiples of SAGA are currently lower than the Insurance industry.
• In March 2020, S&P affirmed “B” Long-term debt rating, with a stable outlook.
• From the technical standpoint, 14-day RSI stood at 21.59 (oversold zone), which is supporting the upside movement.

Key Risks

• The Company is exposed to risks related to credit and liquidity since the operational performance is impacted.
• Travel business remained challenging due to Covid-19 restrictions.

Recent News

On 13 October 2020, the Company announced that the consolidated shares admitted on the Official List and the Main Market, following the approval from shareholders at a general meeting on 2 October 2020. From this, the Company stated that 15 shares of a 1 pence nominal value consolidated into one share with a 15 pence base value. Overall, 139,594,769 shares of 15 pence each were admitted to trading on 13 October 2020.

Financial Highlights (for the six months ended 31 July 2020, as on 10 September 2020)

(Source: Company Website)

• The underlying profit before tax was in line with the expectations.
• In the first half of 2021, the Company showed resilience performance in both the Retail Broking and Underwriting businesses.
• Led by prudent £60 million impairment of Travel goodwill, the loss before tax was £55.5 million.
• The Company has significant available liquidity, with approximately £60 million of available cash resources and £100 million of available undrawn RCF (revolving credit facility), which will remain available until the existing maturity date of May 2023.
• SAGA announced a £150 million of equity raise with Sir Roger De Haan (as a cornerstone investor), which will reduce leverage and significantly reduce balance sheet risks.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

In the first half of 2021, the Company has made significant progress. The Capital Raising, supported by Sir Roger De Haan's, would reduce the leverage, and preserve cash for navigating the covid-19 crisis. SAGA is looking to make progress in the Insurance business with a focus on cost and efficiency. The Company had delivered £15 million of run-rate cost savings. SAGA stated that it expects to be well-positioned to unlock all the potential in Saga, creating significant long-term value for all the investors and returning the business to sustainable growth. The stock made a 52-week low and high of GBX 121.00 and GBX 819.64, respectively.

Based on decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Saga at the current market price of GBX 124.06 (as on 19 October 2020, before the market close at 10:07 AM GMT+1), with lower double-digit upside potential based on 13.20x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

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

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

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