I'm bullish on bargain stock Esure Group plc after 15% sales rise

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Investing in the FTSE 100

Insurance company Esure(LSE: ESUR) has released an upbeat update which shows that the company's strategy is progressing well despite some divisions lagging others. Esure was able to increase gross written premiums by 15.9% in the first nine months of the year. Looking ahead, it has the potential to deliver further impressive performance, as well as share price gains.

Esure benefitted from favourable rates in its motor division. Its gross written premiums in motor increased by 18.3% as it made good progress on its strategic initiatives to grow its business. In particular, a focus on expanding its underwriting footprint is having a positive effect, while greater investment in customer service and in reducing expenses is also positively catalysing its performance.

However, Esure's home division continues to endure a tough period. Gross written premiums in the home division rose by only 3%, with weather costs incurred during the year putting further pressure on the division's performance. However, with it demerging GoCompare.com earlier this month, its capital base has been strengthened further. Therefore, the overall growth outlook remains positive.

Earnings boost

In fact, Esure is on track to deliver on its full-year guidance of a rise in gross written premiums of between 13% and 18%. This is expected to translate into an increase in earnings of 8% in the current year, followed by further growth of 8% next year. Despite this strong growth outlook, Esure trades on a price-to-earnings growth (PEG) ratio of just 1.3, which indicates that it offers significant upside potential.

It remains a sound income stock. It yields 5.1% from a dividend covered 1.8 times by profit. This indicates that there's scope to raise dividends at a faster rate than profit over the medium term, while still maintaining a considerable amount of headroom when making shareholder payouts.

However, Esure isn't the only attractive insurance stock at the present time. Sector peer Prudential (LSE: PRU) is forecast to record a rise in its bottom line of 14% in the next financial year, with its PEG ratio of 0.7 indicating that there are significant capital gains on offer. Furthermore, Prudential is well-placed to benefit over the long run from increasing demand for financial services products in Asia. This could act as a tailwind on its earnings and positively catalyse investor sentiment in the stock.

Of course, Prudential's yield is lower than that of Esure's. Prudential yields 3.1%, but its dividend is covered 2.7 times by profit. This indicates that there's even greater scope to raise shareholder payouts than there is for Esure. When added to its higher growth rate and lower valuation, this makes Prudential the superior buy of the two stocks if I had to choose. However, that doesn't mean Esure isn't worth a look and the stock remains an excellent long-term buy right now.

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Peter Stephens owns shares of Prudential. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.