10.01.2025
In just over a month’s time Sabre Insurance (LON:SBRE) will be issuing a Trading Update for its last year, to the end of December 2024.
I believe that the £336m-capitalised company will give the market guidance that could indicate that its pre-tax profits will have doubled in that period.
Its shares, which touched 183.60p in March last year, have since then fallen back to as low as 124.40p, before a recent gentle recovery in price to 137.50p.
On the face of what I can see they are ready to climb back above last year’s High.
The Business
The Dorking, Surrey-based group provides private car and motorbike insurance through a broad network of insurance brokers with car insurance also being sold directly through its ‘Go Girl’ and ‘Insure 2 Drive’ brands.
It has a diversified book of business and broad underwriting footprint with a bias towards the higher average premium segment.
The company is looking to maintain its focus on the UK private motor insurance market whilst diversifying into other vehicle underwriting opportunities.
Its aim is to continue to provide brokers and direct customers with quotes across the entire risk spectrum and ensure the group continues to deliver market leading underwriting performances, together with controlled and attractive growth over the long term.
Management Comment
On Wednesday 22nd October last year, the group issued a Q3 Trading Update, with which CEO Geoff Carter stated that:
"I'm pleased with our performance at the Q3 stage and look forward with confidence to a strong full-year result. Importantly, our resolute price discipline means we expect to continue this good performance in future periods.
We have seen clear signs that market pricing has softened considerably during the summer.
Our view is that market price movements outstrip any potential short-term benefits from a slight softening in claims inflation.
We remain confident in our view on inflation and that market pricing will have to reflect this in due course.
Our proven, disciplined strategy has enabled us to adapt to changing market conditions successfully and rapidly.
We were able to grow very strongly in attractive market conditions in H1, and then to accept slightly lower, but still good, volumes in Q3.
I am also excited that we are now completing the foundation work that will support our multi-year growth strategy.”
Then less than two months later, when the group held a Capital Markets Event for investors and analysts, the group’s Management outlined its strategy and its medium-term growth objectives.
They discussed the group's 'Ambition 2030' strategy, through which it aims to deliver a pre-tax profit of at least £80m in 2030, representing a compound annual growth rate across the period of c.10%.
CEO Geoff Carter commented that:
"Today's Capital Markets Event is an opportunity for our management team to outline Sabre's ability to deliver material growth across the cycle, whilst maintaining the core principles that have delivered exceptional returns and resilience over the Group's more than 30 years as an underwriter.
The delivery of our 'Ambition 2030' will be underpinned by our proven skills and data, supported by the roll-out of significant technological enhancements to our pricing infrastructure.
We will be targeting profit growth through balancing income and margin and continuing to maintain resolute underwriting discipline.
In addition, we are enhancing distribution across our Motorcycle business, including the launch of a new, online-only direct Motorcycle brand in Q1 2025.
All growth initiatives leverage existing Sabre strengths, do not require capital investment and can be rolled out in a controlled manner.”
Broker’s Views
Analyst Nick Johnson, at Deutsche Numis, has a Buy rating out on the group’s shares, with a recently raised 205p Target Price.
He noted that there are some signs claims inflation is moderating, now estimating this to be high single digits compared with 10% in the first half.
“However, increasing competition for volume in the mass market is said to have driven considerable price softening during the summer.
That said, Sabre observes current price cuts to be far lower than recent episodes; in its view, suggesting a more stable trading environment.
Management of the group remains ‘adamant market prices will need to rise to reflect inflation.”
Over at Panmure Liberum, the trio of analysts - Abid Hussain, Barrie Cornes and Jon Byrne, also have a Buy note out for the group’s shares, looking for 200p as their Target Price.
They estimate that the year to end-December will have seen the group’s pre-tax profits having risen from £23.6m to as much as £48.5m, doubling its earnings to 14.6p (7.3p) and lifting its dividend to 11.8p (9.0p) per share.
For the current year, just started, they look for £55.9m profits, 16.9p earnings and a 14.8p per share dividend.
The year to end-December 2026 could report £58.9m in profits, earnings of 17.8p and paying out a 15.4p per share in dividends.
In My View
There are not many UK-quoted businesses that have such a robust dividend policy as Sabre – which aims to target a payout ratio of 70% of the group’s net profit from operations.
It also intends to periodically distribute surplus capital through the payment of special dividends, subject to capital not being required for growth or to maintain capital coverage within the group’s target solvency coverage ratio of 140% to 160%.
This group has the potential of seeing its shares rise very rapidly towards breaking above its recent High of 183.40p, whilst aiming at the magic 200p point last seen two years ago.
They are now trading at around the 134p level.
However, ahead of its Trading Update in the middle of next month and the before its Finals being announced in mid-March, I am now fixing a Target Price on the Sabre Insurance Group shares of 170p.
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