Jefferies starts Tryg with 'hold', Topdanmark with 'underperform'

Tryg A/S

09/12/2022 09:23

** Jefferies initiates coverage of Danish insurers Tryg
 TRYG.CO  with "hold" due to higher risk to margins, and
Topdanmark  TOP.CO  with "underperform", citing impact of home
claims inflation
    ** Tryg trades in line with both its historic average and
peers, it says, and in its view it fairly reflects the insurer's
track record of margin outperformance, stability, and capital
returns
    ** However, while inflation may be manageable, the risk to
margins is still higher than in prior years, the broker says 
    ** In contrast, Topdanmark's shares continue to trade close
to their all-time high rating, and appear to be pricing the cost
of capital benefit of higher debt but not the corresponding
uplift in the equity risk, it says
    ** With Topdanmark's debt leverage at 27.3%, while Tryg and
Gjensidige  GJFG.OL  both stand at 8.7%, the brokerage sees a
material difference in balance sheet risk   
    ** Jefferies points out that the rate of inflation is high
so that claims costs may have overtaken the benefit of higher
prices, threatening the margin turnaround achieved in 2022 for
Topdanmark
    ** It is also possible that a portion of the expected
special dividend from the disposal of Topdanmark Liv is
allocated to debt reduction, the broker adds, expecting this to
be taken negatively by the market, as it already anticipates the
special dividend
    ** Topdanmark stock is down 2.6% at 0858 GMT, while Tryg
slips 1%
 (Reporting by Marta Frackowiak)
 ((marta.frackowiak@thomsonreuters.com))