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Broker tips: Just Eat, Beazley

By Iain Gilbert

Date: Wednesday 11 Dec 2019

Broker tips: Just Eat, Beazley

(Sharecast News) - Analysts at Liberum slashed their target price on delivery business Just Eat from 1,360p to 870p on Wednesday after the firm's board rejected an improved takeover bid from Prosus.
Just Eat, which recommended shareholders accept an all-share merger with Takeaway.com, believes Prosus' 740p per share bid undervalued the group. The bid followed previously rejected bids - the highest of which at 710p which was subsequently put directly to shareholders for approval following multiple board rejections.

Liberum, which maintained its 'buy' rating on the stock, said it was not surprised by the rejection, noting that Just Eat's management had unanimously favoured an alternative all-share merger with Takeaway.com.

The broker also said it remained sceptical as to whether or not the bid would even reach the required 50% shareholder threshold to be accepted and expects a further improved bid to emerge given Just Eat's scale and dominance in the jurisdictions in which it operates.

However, despite its questions regarding the Press bid, Liberum also maintained its view that the all-share merger would not pass.

"While we believe that the bid is attractive from the perspective that the two groups are market leaders in the majority of their respective jurisdictions, have little geographic overlap and will create a market leader in 15 of the 23 operating markets, we do not see significant synergies and uplift from combining the two groups that justify the current proposal to Just Eat shareholders," said Liberum.

Beazley's scope to release reserves will be hampered by persistent social inflation in the US, Royal Bank of Canada analysts said as they reduced their price target and rating on the Lloyd's of London insurer.

Social inflation is a trend for more litigation, bigger payouts and other changes in liability cases that increase costs for insurers, particularly in the US. Beazley has a relatively large exposure to these claims through its speciality lines division, RBC Capital Markets said.

Though the speciality division has an excellent record, based on superior risk selection and market insight, the company is likely to book potential losses conservatively in 2020. Beazley is well placed to benefit from rising prices but the full benefit will not be felt until 2021/2022, RBC said.

"With social inflation issues likely to persist in 2020, we expect Beazley to adopt a conservative approach to reserving," Kamran Hossain and his team wrote in a note to clients. "We now take a more cautious view on the combined ratio for 2020E with a reduced contribution from reserve releases."

As a result, RBC cut its target price for Beazley to 600p from 650p and downgraded its rating to 'outperform' from 'top pick'. Hossain said RBC continued to see Beazley as an attractive business but that near-term pressures prompted its downgrade.

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