Sabre Insurance: Shares Halved Since COVID, But Not Cheap Enough

Company Update (SBRE LN) (Downgrade to Neutral)

Highlights

• Sabre shares are at 7.4x 2019 EPS and 11.3x 2021 EPS

• The sector’s 2022 earnings downturn was exceptional and cyclical

• EPS can double this year and be back at 2021 level by 2024

• At 135.6p, we see 35% upside (13.6% p.a.) by end of 2025

• But this is not attractive enough and we have long-term concerns

Introduction

We revisit our investment case on Sabre Insurance, a small-cap U.K. specialist motor insurer.

We explore Sabre as another way to benefit from temporary headwinds in U.K. motor insurance – we believe the earnings downturn in 2022 was both exceptional (due to inflation rising faster and more than expected after COVID-19 and the Russian invasion of Ukraine, as well as regulatory changes) and cyclical (due to the natural time lag in pricing adjustments). Prices have risen significantly across the sector while claim cost inflation has stabilized, and Sabre expects to return to a Combined Ratio of 85-90% in 2023, only moderately worse than their long-term target of 80%.

Sabre shares…