Source: Sharecast
It said the weaker return on equity outturn for FY24 and outlook for FY25 relative to peers impairs Conduit’s proposition as a well-timed new business launch in a hard reinsurance market.
RBC said Conduit has outgrown its initial IPO plans by 30% in 2024 with a greater skew towards Property risks.
"This growth seems to have led to excessive natural catastrophe exposure based on the 2024 performance and 2025 outlook, with returns on equity short of its mid-teens target despite peak pricing conditions and high investment returns," it said. "Earnings volatility is higher than we appreciated and we believe this adds to the start-up discount attached to the shares."
RBC said that taken together, it thinks the risk-reward screens less attractive now.
"Our current valuation is 0.8x 2025E NAV, against its current level of 0.7x," it said. "On balance, a well covered circa 7% dividend yield is a positive."
Citi reiterated its ‘buy’ rating on British Gas owner Centrica on Friday and lifted its price target to 187p from 174p following the company’s "stellar" results a day earlier.
The bank said the results ticked boxes on shareholder returns, more efficient use of balance sheet, earnings visibility and stability, "as well as (partially) clarity on growth".
"While we wait for further details around nuclear investment opportunities (Sizewell/Hinkley), Rough and potentially other acquisitive opportunities, investors are rewarded with 16% (4% dividend yield plus 12% share buyback) guaranteed cash return in FY25, the best in the sector," it said. "In addition, already identified investments (gas peakers and meter assets) opportunities should help to mitigate much of the void left by a normalisation of commodity prices."
Citi also said that further investments opportunities should add to earnings.
"We continue to see valuation upside, with higher net cash position, lower pension liabilities, value creative investment and credible earnings trajectory boosting our 12-month price target to 187p/share."