Numis upgrades Lancashire on valuation discount

24th Jul 2014 12:39

Numis Securities has upgraded Lancashire Holdings from 'add' to 'buy' on the back of the stock's valuation discount to others in the sector following an in-line second quarter from the insurer.The broker said that headline profits were in line with forecasts, while net tangible assets (NTA) were better than expectations, as the company delivered "good results in a more competitive environment"."This is a satisfactory quarter from Lancashire, with a number of positives that should strengthen confidence in future earnings," said analyst Nick Johnson.He said that a "significantly reduced share price" now means that the stock's valuation - shares trade at 8.9 times estimated earnings for 2014 - is now the lowest in the sector.Johnson also said that Lancashire's price-to-net tangible assets (NTA) ratio of 1.37 is now around 20% cheaper than sector peers Amlin, Beazley and Hiscox."We expect continued mid-to-high teen return on NTA and reduced risk profile to drive a recovering in the rating."However, the target price for the shares has been trimmed by 35% to 840p, after the broker updated its forecasts for US dollar weakness.The stock was 5.6% higher at 639.5p by 12:29.BC