Motor insurer Sabre Insurance (SBRE) maiden results since listing last December have resulted in 13% being wiped off its share price, down to 241p.
The company posted decent numbers but the market seems spooked by reduced premium income as a result of greater competition.
Sabre says it has seen 'competitive pricing pressure’ at the end of 2017 and in the first two months of this year.
This lead to lower premium income on a year-on-year basis although the company has since taken pricing action which has brought the premium income run rate back up to 2017 levels.
NICHE FOCUS
Sabre operates in a niche part of the market, insuring young drivers which other insurers deem too risky to underwrite. The policy seems to have paid off in 2017 with the company’s combined ratio coming in at 68.5%, beating broker Peel Hunt’s estimate of 71%.
The ratio is the sum of claims, commissions and expenses as a percentage of premium income. Therefore the lower the ratio, the more profitable the underwriting has been. Anything below 100% indicates profitable underwriting.
For comparison, FTSE 100 peer Admiral (ADM) posted a combined ratio of 80% for 2017, which pleased the market as the company had brought it down from 90.8% in 2016.
Barclays describes Sabre’s combined ratio as ‘industry leading’ although the competitive environment may impact it. Sabre’s IPO target was to beat its historical average combined ratio of 74%.
The company says it 'will not drive short term growth at the expense of underwriting profitability or shareholder returns’.
DIVIDEND PLANS
During the IPO, Sabre was promising to deliver a dividend yield in excess of 6%.
Using Barclays’ forecast dividend per share of 20.3p for 2018, Sabre is due to pay out a 8.4% dividend yield. The bank’s earnings per share estimate of 22.5p means that Sabre is trading on 10.7 times 2018’s earnings.
The company’s share price shock today may have been amplified by its relative illiquidity as private equity firm BC Partners still owns around 30% of the company.
