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.

On 14 October 2021, Sabre Insurance expects to announce its Q3 FY21 results.

Investment Rationale – SPECULATIVE BUY at GBX 217.50

• Sabre Insurance continued to hold no external debt, and therefore, the Group's capital is considered 'Tier 1' under Solvency II. It provides greatest operational flexibility for the Group.
• It 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 combined ratio for FY21 is expected to be in the range of 75% to 80%. The Company has relentless focus on prioritizing profitability over volume.
• From a technical standpoint, 14-day RSI (~44.38) is hovering close to an oversold position, while the price is trading close to the lower standard deviation of the Bollinger bands.

Key Risks

• The likelihood of China Evergrande’s debt default risk poses a systematic risk to the financial markets.
• The premium out-turn remained difficult to forecast for FY21 since there is an unprecedented temporary shift in market conditions and reduction in addressable market, as market volume remained subdued due to lockdown restrictions.
• Any uncertainty in the financial transactions and losses above the charged premiums could lead to financial and insurance risk.
  

Financial Highlights (for the six months ended 30 June 2021, as on 27 July 2021)

 (Source: Company Website)

• The Group reported a solid net loss ratio of 44.9% in H1 FY21, reflecting high-quality underwriting profits due to low claims frequency during the lockdown.
• The solvency coverage ratio remained strong at 185% (H1 FY20: 218%), while the return on tangible equity stood at 33.5% (H1 FY20: 39.9%).
• The Company recommended an interim dividend of 3.7 pence, while maintaining strong capital position.

Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

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

Conclusion

During H1 FY21, Sabre Insurance focused on profitability over volume with a solid net loss ratio of 44.9%. The Company has a strong capital base to support an attractive dividend policy despite the market uncertainties. Moreover, there is a significant volume improvement as the Company reported 12 consecutive weeks of modest portfolio growth to 30 June 2021. Furthermore, the traffic volumes are now nearly back to pre-Covid-19 levels, with lockdown easing. It should support the demand further in H2 FY21. In a nutshell, the Company is well-positioned to pursue anticipated growth opportunities. The stock made a 52-week High and Low of GBX 290.00 and GBX 211.00, 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 current market price of GBX 217.50 (as on 27 September 2021, at 8:43 AM GMT+1) with lower double-digit upside potential based on 18.66x Price/NTM Earnings (approx.) on FY21E 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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