RSA dividend cut prompts analyst downgrade

Panmure Gordon analyst Barrie Cornes has downgraded his firm’s recommendation on RSA’s shares from hold to sell after the insurer cut its final dividend by 33%.

Cornes said: “Disappointingly, RSA has cut its dividend and says that it needs to do so in order to grow the business. While the 2012 results were in line with expectations, the 33% cut in the final dividend together with guidance for a similar cut in the 2013 interim in our view removes a key prop to the share price.

“We downgrade our recommendation to sell from hold and lower our target price to 120p per share, at which point it will still be trading at 2.0x NTAV.”

However, Shore Capital analyst Eamonn Flanagan viewed the dividend cut differently, and reiterated his firm’s recommendation to buy RSA stock.

He said: “Trading at a c60% premium to our 2013F NTAV of 84p, dropping to c50% for 2014F (vs 88p) with a 4.6% forward yield (vs 6.25p), we anticipate weakness in the shares this morning. However, once the dust settles we urge investors to revisit the shares and indeed we would view such weakness as a buying opportunity owing to the prospects for the group outside the UK and the expectations for good return on equity delivery in the coming years.”