Uniqa downgraded to 'sell' by UBS amid growth worries

Investing.com -- UBS Global Research in a note dated Monday downgraded Uniqa Insurance Group (ETR:UNIQ) to a "sell" rating, citing a less favorable growth outlook and persistent operational and financial challenges. 

The analysts outline several reasons for the downgrade, including limited strategic ambition, ongoing leverage concerns, and operational headwinds from rising reinsurance costs.

UBS analysts noted that Uniqa’s new strategic targets, unveiled at a recent Capital Markets Day, failed to capitalize on opportunities in the Central and Eastern Europe market, where economic growth and insurance penetration present unique expansion potential. 

Instead, Uniqa set modest growth goals of 5% compound annual growth rate in topline revenue and 6% in earnings per share. In comparison, UBS favors Vienna Insurance Group, which is better positioned to leverage CEE opportunities, with a projected 8% annual revenue growth.

The analysts also flagged Uniqa's exposure to risks, such as high financial leverage and market sensitivity. 

These factors have not been mitigated despite expectations for improvement following the CMD. 

Operational challenges further complicate the picture, including the financial impact of Storm Boris, where Uniqa recorded higher net losses than VIG, despite having a smaller market share in affected regions. 

This has underscored the need for a more conservative reinsurance approach, which will likely increase costs and erode profitability.

From a valuation perspective, UBS criticized Uniqa for trading at a premium to VIG despite offering lower growth potential and higher risk. 

They estimate Uniqa's 2025 price-to-earnings ratio at 7.3x compared to VIG’s 6.0x, alongside a 50% higher price-to-tangible net asset value multiple. 

The dividend yield of 7% is also deemed less compelling when considering the risks and growth limitations.

UBS lowered Uniqa's 12-month price target to €7.30 from €7.40, implying a potential 11.9% decline from the current share price of €8.30. 

UBS favors VIG over Uniqa due to its stronger growth prospects, lower risk profile, and a dividend yield anticipated to match Uniqa's in the future.

Despite strong market leadership in the Austrian health insurance segment, this segment's contribution to overall profits is limited. 

This, combined with challenges in other business areas, leads UBS to believe that the risks associated with Uniqa outweigh the potential rewards.