Berenberg upgrades Esure but expects "challenging period" for UK motor insurers

15th Aug 2014 10:52

Berenberg has lifted its target prices for Admiral, Direct Line and Esure but reckons that the UK motor insurance market is "about to enter a very challenging period"."We expect recent declines in pricing to squeeze underwriting margins as claims costs continue to grow, while regulatory change presents a threat to some revenue streams," the broker said on Friday.It believes that prices will not begin to increase until 2016, and market-wide profitability is set to decline "significantly" before then.Nevertheless, Esure, famous for the Sheilas' Wheels brand, is now Berenberg's "preferred play" in the sector, as it upgraded the stock from 'hold' to 'buy'. The target for the shares was raised from 267p to 286p."The shares offer high yield in the near term, while the group's strong operational platform and attractive customer portfolio make it well placed for long-term growth," the broker said.As for Admiral, the target price now stands at 1,168p, up from 1,090p, though Berenberg repeated its 'sell' rating for the stock. The broker believes that the company will be the most affected by margin pressures.Direct Line was kept at 'hold', while its target was increased from 254p to 261p. The broker said that the stock remains a "defensive play on the market" as operational improvements soften the blow from weak pricing.Esure was up 1.5% by 10:39 on Friday morning, Admiral was 0.8% higher while Direct Line was down 0.2%.BC