Numis sees further upside at Lancashire after stellar Q4

12th Feb 2015 10:01

Insurer Lancashire Holdings smashed City forecasts with its fourth-quarter results on Thursday, which should improve confidence in expectations for 2015, according to Numis Securities.The broker, which kept a 'buy' rating on the stock, said that the shares had become "over-sold" and hold "further recovery potential"."The strong Q4 result should improve confidence in 2015 earnings, which we would expect to be positive for the valuation given that the current 2015 price-to-earnings multiple of 10.0x is a discount of c15% to peers," said analyst Nick Johnson."We think Lancashire's strategy of targeted growth and reduced risk profile will help offset the headwind of rate softening, leaving the company well positioned to achieve our return on net tangible assets forecast of 17% in 2015."Lancashire reported a fourth-quarter pre-tax profit of $91.5m, compared with $55.2m the year before and well ahead of the consensus forecast of $58m, helped by a strong underwriting result and favourable reserve releases.The group also said it would pay an additional special dividend of 50 cents per share, following the $1.20 per share paid out at the third-quarter stage."The Q4 result is a return to former levels of profitability after several quarters that were impacted by abnormal items," Johnson said.The broker retained its 765p target price for the stock, which had jumped 5% to 643p by 10:34.