Market Report: Whiplash curbs may lift insurers

 

A clamp down on whiplash claims may mean it is time to re-look at insurance stocks. Analysts at UBS think the share price of both Aviva and Direct Line Insurance could be driven up next year by government reforms in the motor-insurance industry.

In a slightly awkwardly entitled note, "Whiplash Backlash could enhance earnings per share," UBS thinks Aviva and recently floated Direct Line are looking cheap because they offer "exposure to tort reform upside" – meaning changes in the law to limit the number and size of whiplash claims will benefit these stocks in future.

They admit that although "no one knows if the reforms will work", if claims costs fell by 5 per cent of personal motor premiums it would raise Direct Line's 2013 earnings per share by 19 per cent, Aviva's by 4 per cent and Confused.com and Elephant.co.uk owner Admiral's by 25 per cent.

The case from UBS for Direct Line is in contrast to analysts at Berenberg who on Monday rated the stock a sell and said it was "on the road to nowhere".

However, the company's fans at UBS raised their share price target for Direct Line to 225p up from 215p and maintained their buy rating.

Direct Line, which listed at 175p in October, will enter the mid-cap index on Monday, but the shares fell 3p to 210p yesterday, while Aviva ticked up 5p to 380.8p.

UBS's motor-insurance team retained their neutral – or hold – rating for Admiral but upped their share-price target from 1,085p to 1,150p. The shares travelled up the benchmark index, ending 52p higher on 1,199p.

RSA Insurance's share-price target got an upgrade to 115p from 105p and its shares closed up 1.8p to 126.8p.

Building Group CRH could be looking at cementing its operations in France by snapping up Wolseley's French business, according to construction connoisseurs at Liberum Capital.

In the summer, Wolseley said it was looking at possibly offloading the unit, which has suffered from the eurozone crisis, and Liberum's Charlie Campbell reckons Irish CRH could be a buyer.

Thanks to the likely sale of the French arm, as well as the outperformance of its US business and its long-term margin improvement, Mr Campbell thinks it is time to buy Wolseley shares. He gives it a share price target of 2,972p and its shares built up a 84p gain to 2,880p.

CRH got a boost from Deutsche's analysts – as part of a review of the entire European building sector. They rated CRH a buy, up from hold, and the share-price target was raised to 1,450p. The shares constructed a spot at the top of the benchmark index, up 57p to 1,224p.

The FTSE 100 was put on 25.69 points to 5,961.59, powered by positive progress reports on the fiscal cliff issue in the US and data on German business sentiment.

Traders had time to look at the US for bid rumours too. Vague talk that US-listed Vivus is in the sights of pharmaceutical companies meant that GlaxoSmithKline, AstraZeneca, Merck, Pfizer and Shire were all mentioned as possible bidders by some traders. Despite this, the rumours failed to lift Glaxo, which was down 6.5p to 1,354.5p and Astra, 2p lower on 2,943p.

Trading has improved at bid target Sportingbet and its potential suitor, William Hill, which is particularly interested in the company's Australian and Spanish businesses, has until Friday to make a firm bid or walk away from the online-gaming group.

Analysts at Panmure Gordon prefer shares in bookie William Hill to rival Ladbrokes. They downgraded Ladbrokes to hold but rate William Hill a buy due to its planned Sportingbet buy and its deal to acquire Playtech's minority shareholding in William Hill Online.

If both deals happen, they think that William Hill will become more attractive than Ladbrokes. They raised their target price for William Hill from 350p to 400p and the shares raced ahead 16.2p to 350.5p.

Meanwhile, Sportingbet ticked up 1.75p to 51.75p. Ladbrokes lifted 3.8p to 199.9p but Panmure's target price remained at 195p.

Shares in Rangers Football Club recorded a 6p gain on their debut listing price on AIM yesterday and finished their first day of trading at 76p, which values the club at £49m. The club raised £22.2m. It had initially hoped to raise £27m through the listing.

Buy

Informa

Snap up shares in publisher and events group Informa, Panmure Gordon's analysts suggest. Panmure's Alex De Groote retained his buy recommendation and raised his share-price target for the group to 575p from 525p. He gave the stock his top pick of the media sector for next year. The company's shares ended up 6.5p to 455p.

Sell

Bunzl

Bail out of Bunzl, analysts at Seymour Pierce urge. They rate the outsourcing and distribution group as reduce – a sell – down from hold and gave it a share-price target of 980p. A worse-than-expected, pre-close statement yesterday sent the shares to the bottom of the benchmark index, down 46p to 1.020p.

Hold

Vesuvius

Hang on to shares in Vesuvius, Investec Securities scribblers insist. Investec's Michael Blogg is talking about the newly created engineer from the demerger and splitting of mid-cap group Cookson, not an Italian volcano. Vesuvius is the engineered ceramics and metals part of the former Cookson group and Blogg rates it a hold with a share-price target of 346p. He thinks it can break with its Cookson past and be "managed prudently to generate robust cash flows, underpinning a good and progressive dividend". Its shares closed at 324p on the first day of trading.

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