- Premium growth muted by design
- Margins improve substantially
- Dividend up 44% plus buyback
Patience is a virtue, and investors in motor insurer Sabre (SBRE) have finally been rewarded after the group posted slightly better-than-expected results, hiked the dividend and announced a small buyback, the first in its history.
The shares, which had been languishing at 12-month lows, jumped 10p or 8% to 134p on well above average volume.
SHARP RISE IN MARGINS
For the year to the end of December, the firm reported gross written premiums of £236 million, an increase of just 5%, but a net insurance margin of 17.6% compared with 10.6% the previous year as its focus on quality over quantity paid off.
Pre-tax profit more than doubled from £23.6 million to £48.6 million, meaning return on tangible equity improved from 22.7% to 38.2%, and the firm raised its total dividend by 44% from 9p to 13p per share.
With its solvency ratio still above 170% after the increase in the payout, the firm also announced a £5 million share buyback.
Chief executive Geoff Carter declared himself ‘extremely pleased’ with the 2024 results, which demonstrated ‘strong cycle management over the past 12 months’.
‘We grew strongly in the first half of the year when market conditions were attractive, and we maintained our strict underwriting discipline despite a steep decline in market prices during the second half,’ added Carter.
STRATEGIC AMBITION
Last December, Sabre held a capital markets day to present its ‘Ambition 2030’ plan to grow its business by targeting a slightly higher loss ratio on lower-risk business, allowing it to take incremental market share but ‘move down the risk curve’ at the same time.
As Philip Kett at Jefferies noted, this approach of reducing the risk mix to reduce claims volatility is similar to that of Direct Line, which has now been acquired by Aviva (AV.), while the firm’s targets of 18% to 20% net insurance margins and £80 million of annual pre-tax profit by 2030 were ‘particularly enticing as they suggest a more than 10% compound annual growth rate’.
With today’s results, Geoff Carter said he was ‘encouraged’ by Sabre’s early progress towards its 2030 goals, with ‘excellent’ loss ratios on motor vehicles and motorcycles underpinning the strategy, although the full benefits would take time to come through and would be weighted towards the end of the decade.
‘While our plans to deliver sustainable growth will not be a "straight-line" evolution, the next few years will be exciting as we build on the strong 2024 result and deliver sustainable medium-term growth in premiums, profit and shareholder returns.’
WHAT DO ANALYSTS THINK?
Jefferies’ Kett flagged the dividend hike and buyback as the main surprises in the results, suggesting they showed management conviction the growth strategy could generate more capital than the firm needs.
‘In our view, such near-term capital returns are necessary to bridge the gap between the current cyclical downswing in industry-wide motor insurance prices, and the medium-term 2030 ambition to grow the business, where growth is likely to be back-end loaded,’ added Kett.
Analysts at Berenberg agreed growth this year was likely to be muted, although the firm’s strong profitability last year ‘gives it room to optimise volume/margin this year, given the slight softening of claims inflation’.
With the buyback, they calculate the total cash return for 2024 is 15p per share, yet the shares still trade on less than eight times this year’s earnings, which is well below the five-year average and even below the ‘peak-2022 inflation’ valuation making the stock ‘attractive’ at these levels.
