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Broker tips: Hastings, NMC Health, Ryanair

By Iain Gilbert

Date: Friday 09 Aug 2019

Broker tips: Hastings, NMC Health, Ryanair

(Sharecast News) - Analysts at Berenberg slightly lowered their target price on insurance group Hastings' shares from 228p to 221p on Friday, noting that they expected the pricing cycle to turn and leave the company "well-positioned to benefit".
The German broker acknowledged that investors seemed to be wondering whether Hastings' recent earnings downgrade would be the last in the current cycle and in its opinion, the answer to the question would depend on the pricing environment in the second half of 2019.

If pricing momentum continued to build in the back half of the year, Berenberg expected Hastings to "scrape in below the top of its loss ratio guidance range". However, if soft market conditions persisted, the analysts warned that guidance was "likely to be missed".

"As such, we expect that market pricing will ultimately be the driver of short-term performance. In the longer term, we expect fundamentals will win through," said Berenberg.

"The pricing cycle will turn and Hastings is well-positioned to benefit."

Berenberg also said that Hastings had "a cost and technological advantage" over peers, further highlighting how new operational initiatives coming onboard were "already producing results".

"Therefore, we maintain our 'buy' recommendation but accept that short-term moves are likely to be led by the movement in pricing data reported in H2."

Touching on the insurance industry as a whole, Berenberg said it expected pricing to begin to harden in the second half.

"Industry profitability is reaching breaking point, claims inflation drivers look set to continue, reserving buffers are reducing and the lower-than-expected Ogden rate adds to the inflationary environment.

"If such an environment materialises, Berenberg expects Hastings to be "the major beneficiary."

Barclays lifted its price target on shares of UAE-based healthcare operator NMC Health to 4,275p from 4,100p on Friday, saying first-half results later in the month should be a positive catalyst, particularly after recent share price weakness.

The bank said Thursday's company release should go some way to de-risking the numbers.

NMC put out a statement backing its full-year guidance as it sought to reassure investors following a slump in the share price earlier this week. It said that following a "good" performance in the first half of the year, the business remains in line with management expectations on all key metrics including revenue, EBITDA, net income, leverage, cash flow conversion and working capital.

As far as the upcoming results are concerned, Barclays said investors are likely to focus on the underlying performance of the business, execution against earnings guidance and free cash flow delivery.

"Seasonality in the business (Ramadan etc) does drive a H2 skew in both earnings and free cash. That said, we still expect a solid print with significant estimated free cash flow improvements in H1 19 relative to the prior year and forecast $56.8m (versus -$11m in H1 18)," it said.

"Following numerous investor discussions in recent weeks, we believe an in-line statement (both on earnings and FCF) would be sufficient to drive outperformance in the shares given the recent weak sentiment."

Barclays added that at current valuations, a deteriorating fundamental picture is priced in, while no credit is given for the Saudi opportunity.

"We continue to believe fundamentals are robust," said the bank, which rates NMC at 'overweight'.

Analysts at Canaccord Genuity trimmed their target price on low-cost European carrier Ryanair's shares from €10.90 to €10.20 on Friday, noting that the group's share price looked set "to tread water" until the revenue environment recovered.

Canaccord acknowledged that both first-quarter passenger volumes and revenues rose 11% to 37.6m and €2.08bn, respectively, but highlighted the fact that average fares declined 6% during the period - but due to a strong performance in ancillary revenue, total revenue per passenger was broadly unchanged at €55.

Operating profits fell by 26% to €275.1m as unit costs excluding fuel rose around 4%, mainly reflecting the consolidation of Lauda, replacing expensive leases from Lufthansa with lower-cost operating leases and a 21% increase in staff costs.

Net profit and diluted earnings per share declined by 21% and 19% to €242.9m and €0.21, respectively.

The Canadian broker, which reiterated its 'hold' rating on the group, also said the uncertainty surrounding the MAX aircraft deliveries was also unhelpful and while it may provide near-term support to yields, it may also adversely impact unit costs and medium-term growth.

Canaccord reduced its average fare assumption for Ryanair from -1.0% to -1.5% for 2019-20 and from 3.0% to 2.0% for 2020-21 to reflect "the weak revenue environment and ongoing near-term uncertainties".


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