Allianz Group (FROM: VAT) Is one of the world's leading insurance companies and asset managers with 100 million private and corporate clients in 70 countries. The company provides personal and corporate insurance services.: starting property insurance, life and health to credit insurance and global business.
About company
Allianz is one of the largest investors in the world, managing approximately €793 billion on behalf of its insurance clients. Besides, PIMCO and Allianz Global Investors manage more than €1.8 trillion in third-party assets. The company is among the leaders in the insurance industry according to the Dow Jones Sustainability Index.
The company's business is divided into the following segments.
Insurance operations. There is also a division into sub-segments: "Property and Accident" and "Life and Health". In the Property and Accident sub-segment, the company provides casualty insurance services, car insurance, property, civil liability, travel and assistance services.
The Life & Health sub-segment offers products, oriented towards savings and investments in addition to life and health insurance. The key markets for the company in terms of premiums are Germany, France, Italy and USA. The share in the revenue structure in 2020 was 92,99%.
Asset Management. The company offers fixed income products, cash and multiple assets, alternative investment products: infrastructure loan, liquid alternatives and business solutions. Based on the results of the first half of 2021 75% assets under the company's management are fixed income assets - bonds. Main markets of this direction: USA, Canada, Germany, France, Italy, UK and Asia Pacific. The share in the structure of revenue in 2020 was 4.93%.
Corporate and other. This is the management and support of the business of the Allianz Group through its central holding functions.. The functions of the holding include the management and support of the business group, development and implementation of strategies, risk and corporate finance management, financial reporting, etc.. The share in the structure of revenue in the first half of 2021 amounted to 2,07%.
Revenue and Profit Structure, billion euros
| Revenue in 1H2020 | Revenue in 1H2021 | Share of revenue in 1H2021 | Revenue changes | Net income in 1H2021 | Profit share in 1H2021 | |
|---|---|---|---|---|---|---|
| Property and accident | 33,785 | 33,61 | 43,32% | -0,52% | 2,095 | 41,53% |
| Life and health | 36,356 | 38,536 | 49,67% | 6,00% | 1,947 | 38,60% |
| Asset Management | 3,493 | 3,835 | 4,94% | 9,79% | 1,216 | 24,11% |
| Corporate and other | 0,111 | 0,131 | 2,07% | 18,02% | −0,214 | −4,24% |
| Consolidation | −0,250 | −0,364 | — | 3,07% | — | — |
| Total | 73,495 | 75,748 | 100% | 3,07% | 5,04 | 100,00% |
Financial indicators
At the end of the first half of 2021, the company's revenue increased by 3,06% up to 75.7 billion euros due to the growth of such segments, as "Asset Management" and "Life and Health". Operating profit increased by 36,7% up to 6.65 billion euros due to the low base effect, caused by the pandemic in 2020. As a result, net profit increased by 62,5% compared to the same period last year - due to the growth of operating profit and profit from non-operating investments. Free cash flow decreased by 39,5% due to decreased operating cash flow.
Like other insurance companies, Allianz hit by natural disasters in Europe this summer. In August, there was a flood in Germany - and the company announced compensation for losses of 500 million euros, and in general, payments from storm Bern are expected in the amount of about 900 million euros.
In addition to losses on insured events, the company is suing in the USA for Allianz investment funds, which had to be closed at a loss. The company does not disclose the amount, to be paid in case of loss, but we are talking about 2 billion euros.
The company expects to generate about 12 billion euros of operating profit for the whole year., plus or minus a billion. The company noted, that natural disasters and adverse events in the capital markets may affect Allianz's operating or net income for the year.
Financial performance of the company, billion euros
| Revenue | Operating profit | Operating margin | Net profit | FCF | |
|---|---|---|---|---|---|
| 2017 | 126,149 | 11,097 | 8,80% | 6,803 | 31,60 |
| 2018 | 132,283 | 11,512 | 8,70% | 7,462 | 24,41 |
| 2019 | 142,369 | 11,855 | 8,33% | 7,914 | 35,210 |
| 2020 | 140,455 | 10,751 | 7,65% | 6,807 | 30,62 |
| 1п2021 | 75,749 | 6,655 | 8,79% | 5,040 | 13,77 |
Balance sheet and leverage
Assets grew by 1,4% up to 1.078 billion compared to the same period last year due to growth in cash and financial assets for contracts. The capital of the company decreased by 3,9% - this is due to the payment of 4 billion euros in dividends in May 2021 and a decrease in unrealized profits and losses by 4.6 billion. Total debt increased by 9,4% compared to the last half of the year to 26.27 billion. Net debt increased by 110% due to the growth of total debt to 2.13 billion.
Market situation
The European insurance market has long been established, and the key players have not changed for a long time. Major players in the insurance market — Allianz, Munich Re, Zurich Insurance Group, AXA SA, Generali Insurance.
Insurance industry benefits from economic recovery in H1 2021, recorded an increase in premium income in many lines of business. Awareness of the high risk of COVID-19 has increased demand for the company's services: people actively began to buy insurance to protect against risks as for personal purposes, such as health and life, as well as for commercial purposes: supply chain and cyber threats.
The European health insurance market was valued at $272.78 billion in 2020 and, according to forecasts, will grow on average by 6,07% by 2026. The driving force of the market is the growing awareness of the population about modern medical institutions.
Increasing the cost of quality healthcare and medical services, especially in private hospitals, led to an increase in demand for health insurance - all this makes a health insurance plan for the population a vital necessity. In many countries, the government has made health insurance compulsory for public and private workers.. This provides the big players, like Allianz, stable revenue stream.
By 2030 Asia, excluding Japan, will become the largest insurance market with a share of 35% compared to 24% Right away. China will be the driving force, whose premium insurance fund will grow by 777 billion euros - the size of the UK market, France, Germany and Italy combined. Meanwhile, according to forecasts, the share of North America and Western Europe will be reduced to 30 And 21% with 34 And 27% currently, respectively.
Long term, Considering, that Allianz receives a significant part of the revenue from these regions, decrease in performance can be expected. If, certainly, the company will not decide to enter the Asian market and compete with regional insurance companies.
Comparison with competitors
Allianz is one of the leaders in terms of ROE and revenue growth. Respectively, if forecasts for the growth of the insurance market in Europe come true, then Allianz will be one of the main beneficiaries.
Comparison with competitors in terms of revenue growth and ROE
| Revenue 2016 | Revenue 2020 | Revenue growth rate | ROE | |
|---|---|---|---|---|
| Allianz SE | 107,51 | 112,24 | 0,86 | 9,17 |
| Generali Insurance | 81,76 | 79,49 | −0,56 | 5,97 |
| AXA SA | 121,8 | 102,58 | −3,38 | 4,47 |
| Zurich Insurance Group | 67,33 | 58,62 | −2,73 | 10,46 |
| Munich Re | 64,4 | 76,49 | 3,5 | 4,19 |
Comparison with competitors by multipliers
| P / E | P / BV | P / S | EV / EBIT | |
|---|---|---|---|---|
| Allianz SE | 9,67 | 1,07 | 0,71 | 7,03 |
| Assicurazioni Generali SpA | 10,91 | 0,95 | 0,29 | 7,16 |
| AXA SA | 10,32 | 0,84 | 0,51 | 6,5 |
| Zurich Insurance Group | 13,66 | 1,8 | 0,93 | 9,05 |
| Munich Re | 16,71 | 1,18 | 0,54 | 3,66 |
| Mean | 12,25 | 1,168 | 0,6 | 6,68 |
| Potential to rise or fall | 27% | 9% | −16% | −5% |
DDM model
Considering, that the analysis of multipliers did not give a clear answer, is it worth buying shares, it was decided to draw up a simple DDM-model based on discounting future dividends by 5 years to determine the fair price of a share.
As a basis for the data on the risk-free rate, I used data on the average monthly yield of the index of five-year government bonds in Germany, risk premium and data on the current Beta company. To calculate the level of revenue and profit for the current year, I relied on company forecasts. When building a forecast for longer periods, as well as on the average growth rate of dividends and the company's revenue, analysts' forecasts were used.
The company expects to generate an operating profit of 12 billion euros in 2021. Assuming, that the company's losses from natural disasters will amount to 900 million euros and the loss from the court will amount to 2 billion euros, then at the end of the year, net profit will be approximately 5 billion euros - these data are used in the forecast model.
The company has an alternative option - increasing the debt burden, which is currently small., but in any case, the company will have to look for resources.
Target share price, calculated by this method, is 319,1 €, upside potential to current levels — 63%. To make a decision to buy shares using discounting models, upside potential from 20% - respectively, these shares are included in this range and can be considered for purchases at current levels.
Dividends and buyback program
At the end of 2020, Allianz dividends amounted to 9,6 € per share - this brought shareholders about 5% dividend yield. Share of net profit, that the company spends on dividends, averages 50-60%. This provides a safe haven for the company's activities and the stability of dividend payments in the future..
At the end of 2021, shareholders should expect 6-7 € per share, which, given the current value of the share, will bring 3-3.5% of annual profitability, which is not so attractive. But you need to take into account, that these are one-time difficulties and the company may well return to average profitability in the coming years, which are more interesting. Average dividend yield on Allianz shares for 5 years - 4,73%, and the average increase in dividend per 5 years was 5,63%. Continuous growth of dividends lasts 14 years.
In addition to dividends, the company also uses a share buyback program to increase shareholder returns.. According to the results of the first half of 2021, the company announced a new buyback program up to 750 million euros. The program will be completed no later than 31 December 2021. Allianz will cancel all repurchased shares, what will be an additional bonus for investors.
History of the company's dividend payments
| Dividend per share | Payout ratio | Dividend yield | Buyback Yield | Total return | |
|---|---|---|---|---|---|
| 2016 | 7,30 $ | 47,70% | 5,14% | — | 5,14% |
| 2017 | 7,60 $ | 53,00% | 4,01% | 0,38% | 4,01% |
| 2018 | 8,00 $ | 52,00% | 4,85% | — | 4,85% |
| 2019 | 9,00 $ | 51,00% | 6,61% | 1,40% | 5,61% |
| 2020 | 9,60 $ | 59,00% | 4,36% | — | 4,36% |
What's the bottom line?
Allianz is a long-lived company, which has long taken its place in the European insurance market. According to the results of the first half of the year, Allianz showed a recovery in revenue and profit after a decline, associated with the pandemic. European insurance market, As expected, will continue to grow due to risks, associated with the COVID-19 pandemic. The company is one of the most efficient in its market, which will have a positive impact on its key performance indicators in the future. Stocks can be recommended to conservative investors in long-term investment portfolios.
