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FTSE cautious after Greek deal but car insurer Admiral accelerates after upgrade

Credit Suisse moves from neutral to outperform on Admiral, but overall investors wait on sidelines

With markets pausing for breath after the eventual early morning agreement on Greece’s €130bn bailout, miners are among the leading gainers as commodities continue to rise.

And car insurer Admiral has accelerated to the top of the leading index following an upgrade from Credit Suisse. The bank has raised its rating from neutral to outperform ahead of the company’s results due at the start of March. It put a price target of £13 a share on Admiral, which has been hit hard recently by worries about its outlook and business model after a profit warning. Analyst Christopher Esson said:

We expect 2011 results on 7 March to represent the first step for Admiral towards regaining market confidence that bodily injury challenges are being resolved, with improved clarity expected to provide upside risk to earnings expectations.

One element of the bear case on Admiral is the risk that a loss of reinsurance support may undermine the business model. While these concerns have been alleviated by the recent extension of the reinsurance program to 2014, our analysis suggests the financial impact of a shift towards a more normal ceding ratio would be relatively modest anyway.

Andy Hughes at Exane BNP Paribas was less supportive however, especially regarding bodily injury claims:

This is the first set of results since the November profit warning. The underlying reason for the profit warning – large bodily injury claims, could be a statistical wobble in the business. However, it could also signal that Admiral is not properly reserved for 2009 and prior years where they assume the case estimates are prudent and apply a discount in setting reserves. We expect many questions on large bodily injury claims.

Admiral is 38p higher at £10.49. Overall, in an uncertain start following the Greek deal, the FTSE 100 has edged up 0.65 points to 5945.90. Simon Denham at Capital Spreads said:

The FTSE is suffering a little bit of early weakness as investors make use of the odd adage buy the rumour (bailout of Greece imminent) and sell the fact (actual bailout finally agreed). This is welcome on many fronts in that firstly the market can put this issue to bed for now and secondly we can talk about other things apart from Greece. I have a nasty feeling though that since a deal with the private bond holders is still yet to be agreed and the fact that there are fears any new government in April will simply not impose the austerity, we may be talking more about Greece sooner than we had hoped.

With copper and other metals moving higher after it looked like Greece has avoided a default – for now – mining groups are well supported. Vedanta Resources has risen 43p to £14.01 while Kazakhmys has climbed 14p to £11.61. Anglo American has added 30p to £27.20, shaking off competition commission concerns about its proposed deal to merge its Tarmac business with the cement and aggregates operations of France’s Lafarge.

Elsewhere chipmaker CSR has fallen 10.4p to 264.6p on profit taking after Monday’s well-received results and m share buyback plan. Canaccord Genuity has moved from buy to hold, as has Numis, following the figures.

Homeserve is down 9.3p to 225.1p in the wake of problems at credit card insurer CPP. Espirito Santo said:

HomeServe’s difficulties remain different to CPP: the group has to date not received any section 166 notice from the FSA, self-reported its uncovered sales failings, and arguably offers a product with greater transparency as to its cover and limitations. However, CPP’s issues do offer insight into the severity with which the regulator can act. For Homeserve, we do not yet have sufficient confidence that UK customer retention has stabilised to merit a return to a positive rating. Given there is little direct associated cost to renewals activity, halting a slide in this metric is key to rebuilding credibility in both consensus forecasts and the wider resilience of the group’s insurance-based model. We have a neutral rating. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds