On Friday, Citi downgraded Gjensidige Forsikring ASA (GJF:NO) (OTC: GJNSY) stock from Neutral to Sell, adjusting the price target to NOK173.10 from NOK184.30.
The downgrade is based on a perspective that the market consensus for a year-over-year improvement in the company's underlying frequency loss ratio (ULFR) is overly optimistic.
Citi believes that Gjensidige has not yet reached a point where margins are improving, while claims frequency appears to have increased year-over-year in the third quarter of 2024.
Gjensidige's average in-force premium for Norwegian motor insurance rose by 10.2% in the second quarter, compared to a total claims inflation of 12.3%. With these figures in mind, Citi forecasts a combined operating ratio (CoR) of 86% for the year 2025, which is higher than the current market consensus of 84.3%.
According to Citi's 2025 earnings estimates, Gjensidige's stock is trading at a roughly 7% premium compared to its historical average price-to-earnings (PE) multiple.
The firm also signaled a negative Catalyst Watch ahead of the company's results, expecting a weaker progression in ULFR due to a continued rise in claims frequency year-over-year.
Additionally, Citi anticipates unfavorable comparisons to the third quarter of 2023, as they estimate that quarter's ULFR was more than 50 basis points lower due to reserve strengthening actions in the fourth quarter of 2023, which were related to earlier quarters.
In other recent news, Gjensidige Forsikring has been the subject of several analyst downgrades. Jefferies downgraded the company's stock from Hold to Underperform, citing concerns about the company's profitability and potential stagnation of dividend payouts.
Berenberg also downgraded the insurer's stock from Hold to Sell, pointing to a delayed turnaround in underwriting profitability and significant revenue concentration in Norway.
BofA Securities shifted its stance from Neutral to Underperform, suggesting that the current valuation fully reflects the earnings recovery. These recent developments indicate that analysts are adopting a cautious outlook towards Gjensidige Forsikring's future performance.
InvestingPro Insights
Despite Citi's downgrade, InvestingPro data reveals some positive aspects of Gjensidige Forsikring ASA's financial performance. The company's revenue growth stands at 17.22% for the last twelve months as of Q2 2024, indicating strong top-line expansion. Additionally, Gjensidige boasts a healthy operating income margin of 14.91% for the same period.
InvestingPro Tips highlight that Gjensidige has maintained dividend payments for 14 consecutive years, which may appeal to income-focused investors. The company's current dividend yield is 2.98%, offering a steady income stream. Moreover, Gjensidige is trading near its 52-week high, with a price that's 98.12% of its peak, suggesting strong market confidence despite the analyst downgrade.
It's worth noting that Gjensidige's P/E ratio of 23.9 and Price to Book ratio of 4.24 indicate a premium valuation, aligning with Citi's observation about the stock trading at a premium to its historical average. Investors seeking a more comprehensive analysis can find 6 additional InvestingPro Tips for Gjensidige, providing a broader perspective on the company's financial health and market position.
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