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Investing.com -- UBS Global Research has recently downgraded Scor (EPA:SCOR) to a “neutral” rating from “buy.” This revision reflects a revised perspective on Scor’s dividend yield and its impact on the company’s stock performance.
The core rationale behind this downgrade, as articulated by UBS Global Research, centers on the belief that Scor’s dividend yield is now creating a ceiling for the stock’s price.
Analysts at UBS Global Research suggest that despite a low payout ratio, the dividend yield is acting as a limiting factor on the stock’s potential.
The investment firm has identified several constraints that, in their view, are impeding a higher payout ratio in the medium term, which has led them to reassess Scor’s attractiveness relative to its reinsurance peers.
A key element in this analysis is Scor’s 2026E P/E ratio, which UBS Global Research notes is currently below pre-COVID levels.
The analysts suggest that a return to these historical P/E levels is unlikely unless Scor can enhance its dividend yield, which would require a higher payout ratio, a stronger solvency position, or a major increase in EPS.
UBS Global Research outlines several factors that constrain a higher distribution. Firstly, Scor’s debt leverage is close to the revised 25% level, and it’s materially above European Reinsurers peers, assuming full or zero CSM allowance.
Normalizing this would result in the Solvency ratio being about 10 percentage points lower.
Secondly, Scor has guided to only 2-4 ppts cumulative capital generation post dividend over the next two years, while UBS Global Research estimates 7ppts, which only leads to a 219% FY26E Solvency 2 ratio, compared to the 185-220% optimal range.
Thirdly, Scor’s Solvency 2 ratio assumes materially more diversification credit than its peers, a factor UBS Global Research views as a risk that could narrow.
The analysts also indicate that while Scor’s P&C is showing signs of improvement, investors are likely to remain cautious.
UBS Global Research suggests that investors are likely to wait for another catastrophe season and a higher distribution before fully acknowledging the delivery in Scor’s P&C segment.
UBS Global Research acknowledges that Scor’s P&C segment is showing positive signs, such as reserve builds and reduced catastrophe volatility, which provide some comfort.