Sabre Insurance Group Plc

Sabre Insurance Group Plc (LON: SBRE) is a UK based motor insurer that offers diversified products through different distribution channels.

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

Rationale for Valuation – Speculative Buy at GBX 248.00

• The debt/equity ratio was nil from the past three years, reflecting that the Company is less leveraged as compared to the industry.
• The Company has decent fundamental metrics as it has maintained a pre-tax ROE (return on equity) above 9% for the last two years.
• The Company seems to be well-positioned and is delivering a 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.
• From the technical standpoint, 14-day RSI stood at 18 (oversold zone), which is supporting the upside movement.

Key Risks

• Any uncertainty in the financial transactions and losses above the charged premiums could lead to financial and insurance risk.
• Moreover, the Company operates in a strict regulatory environment; any change in regulations or government policies could affect the company's overall business.

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 shown a strong organic capital generation, with a solvency coverage ratio of 186% at the end of September 2020 (which was higher than the target range of 140% to 160%).
• SBRE witnessed a strong balance sheet with no debt.

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 200.00 and GBX 335.00, 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 248.00 (as on 28 January 2021, before the market close at 8:50 AM GMT), with lower double-digit upside potential based on 2.87x Price/NTM Book Value (approx.) on FY21E book value per share (approx.).

Medica Group Plc

Medica Group Plc (LON: MGP) is a Health Care Equipment & Service company providing teleradiology services. The Company presently offers three services to hospital radiology departments, including routine plain film (Routine PF), Routine cross-sectional (Routine CS) and NightHawk.

On 1 March 2021, the Company will release the FY20 financial results.

Rationale for Valuation – Speculative Buy at GBX 115.80

• FY20 profits were in line with expectations, cash generation remained strong in 2020, and it continued to make significant investments. Therefore, it has made good progress.
• As per valuation metrics, EV/Sales multiple is currently lower than the Healthcare industry.
• The Company has decent fundamental metrics as it has maintained a Gross margin above 45% for the last three years.
• The debt/equity ratio was 0.33x in H1 FY20, lower than the industry median. Hence, the Company is less leveraged as compared to the industry.
• From the technical standpoint, 14-day RSI stood at 34 (oversold zone), which is supporting the upside movement.

Key Risks

• The Company may face the loss of output due to disaster or disruptive event at logistics facility or manufacturing facility.
• The Company operates in a highly regulated landscape, and failure to comply could lead to a significant financial or reputational loss.
• Also, the overdependence on technology can lead to loss of data and significant service interruptions.

Recent News

On 26 January 2021, the Company has appointed Liberum Capital Limited as its joint corporate broker.

Trading Update (for the year ended 31 December 2020, as on 21 January 2021)

• Due to the impact of the Covid-19 pandemic, FY20 revenue is expected to be £36.8 million, which will be around 21% lower than the previous year. While the Company expects strong gross margin and profits to be in line with the previous expectations, with adjusted net operating profit margins of approximately 14% for FY20.
• In 2020, the Company saw strong cash generation, with gross cash of £13.9 million and net debt of £4.0 million at 31 December 2020.
• In December 2020, it had a partnership agreement with Sectra Ltd. This agreement will deliver a new OACS (Picture Archive and Communication System) and expects to go live in Q1 FY22.
• Further, it remains well-positioned to complete Global Diagnostics Ireland's integration as planned by the end of Q1 FY21.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

Despite the lower FY20 financial results, the Company has made good progress with the new strategy and more investment (which underpin long term growth). It also made the first acquisition in the Republic of Ireland, with the first AI (Augmented Intelligence) solution into clinical reporting and launched the exciting FutureTech programme. However, the recovery of the Company's Elective work will be impacted in Q1 2021. It has launched a new website in September 2020 and increased engagement with staff and radiologists. Moreover, the Company has a strong liquidity position and is looking to expand geographically with new business lines and selective M&A in the mid to long-term period. Overall, it remains confident about the long-term growth prospects. The stock made a 52-week low and high of GBX 88.00 and GBX 160.00, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Medica Group at the current market price of GBX 115.80 (as on 28 January 2021, before the market close at 10:51 AM GMT), with lower double-digit upside potential based on 22.50x Price /NTM Earnings (approx.) on FY21E earnings per share (approx.).

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

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

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