Investec has kept its 'sell' rating and 101p target price for insurance giant RSA after the company surprised the market with a dividend cut on Wednesday morning.

While results were largely in line with market expectations, the company reduced its payout by a third, causing shares to tank early on - by mid-morning, the stock was down as much as 12.81% at 118.85p.

Analyst Kevin Ryan from Investec said: "We commented in our sector review of January 7th 2013 that the company was just one catastrophe loss away from being forced to cut the dividend.

"Management has clearly decided to re-base the dividend as, on our estimates, it could grow the dividend modestly but had little spare cash to invest in the business. Prudence rather than a large loss seems to have driven the cut."

Meanwhile, Ryan said that "economic torpor" and competitive insurance rates across the globe mean that RSA will struggle to grow its top line.

He pointed out that reported premiums were flat last year which is an issue "because operational costs always rise and claims costs often spike".

The shares are currently trading at 1.7 times Investec's 2013 tangible net asset value estimate of 75p, which the broker thinks is "too expensive".

"RSA is a well-run business, but growth will prove elusive, so we retain our 'sell' recommendation," Ryan concluded.

BC

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