Buy Admiral but put Direct Line on hold is the simple message from Berenberg in a look at the motor insurance sector.
Admiral is one of the highest-quality names to own in the European insurance sector and after a spectacular run, the shares have dropped by around 20% since August.
That’s unwarranted said the broker, with work undertaken on reserves and profit commissions fully justifying a premium to pre-pandemic levels.
Admiral also trades with an elevated dividend yield between now and September 2021, which makes it the most attractive way to play to the UK motor insurance space said the broker, which has raised its target price to 3,245p.
Direct Line, by contrast, is still being affected by the FCA’s review into general insurance pricing practices and while the insurer should be able to deal with any impact until there is clear evidence of thisi n its numbers, it is likely to continue to trade at current low levels.
In addition, Direct Line’s transformation is showing in its figures much more slowly than the broker anticipated and this has made the story less exciting.
Hold from buy, says the broker, with the price target cut to 295p from 396p.