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Erratum: This report is a correction to a document published at 17:59 (London time). There was an FX miscalculation leading to an understatement of DLG earnings in a combined group. Ageas has made an indicative proposal to Direct Line, which has been rejected The proposal is for the entire issued share capital of DLG, valuing the entity at cGBP3bn. The proposal has been rejected. The offer was a surprise to markets, with Ageas not expected to pursue a deal of such size. It would technically meet the company''s stated ambition of: 1) An in-market consolidation; 2) A diversifying, fully controlled entity; and 3) improve the cash profile of the growth. Less than EUR100m of synergies needed to make it accretive If we assume cEUR1bn would be raised via debt capital we estimate that Ageas would need to achieve EUR100m of synergies to make the deal accretive on an EPS basis, equating to c10% of DLG Opex. Cash profile would fully benefit from synergies On a cash basis, the deal looks highly accretive. The deal is marginally accretive pre-synergies. Assuming an 80% remittance ratio from DLG stand-alone within Ageas, the cash position per share is 1% higher. As such, any synergies would immediately benefit the cash position per share. Deal funding would be a challenge The proposal involves paying DLG shareholders EUR1.5bn in cash. Ageas has cEUR900m of solvency eligible debt capacity. The company has cEUR350m of excess cash available at holding. However, the financing of such a large cash outlay would likely be challenging and require significant leverage. A challenging deal, even if it is accretive on paper The deal is accretive on paper, particularly on a cash basis, and meets the company''s strategic ambitions. However, it would likely be a significant challenge. Ageas is still undergoing its own, seemingly successful, business transformation. DLG is about to embark on another one. This would add significant complications to any integration, especially given...
Ageas ageas SA/NV
High yield, high growth, a sustainable dividend. So what''s the issue? China. Ageas has the 4th highest ordinary dividend yield in the sector. It is also forecast to be in the top quartile of net income growth from 2024 - 28. This appears something of a valuation anomaly. Ultimately, this is a result of Ageas''s unique structure and its Chinese exposures which have de-rated significantly. We believe this de-rating is too extreme. Even our conservative cash-based valuation yields significant upside. As such, we re-initiate Ageas on Outperform, EUR47 target price. What are Ageas''s Chinese Holdings worth? The main debate on Ageas is how much value investors should attribute to its Chinese holdings. Currently, we think the market is attributing a valuation in the range of EUR500 - 700m, based on the China Taiping share price and our implied sum-of-the-parts. On certain valuation multiples this looks extreme even given the current elevated risks. For example, this would be just 0.05x 2025E consensus Embedded Value or c2x 2025E earnings. High dividend growth can be sustained in the medium term Investors also question the sustainability of capital returns given tight remittance headroom. However, management actions have created significant cash flexibility at the Holding company. This can more than cover capital return requirements at a time when Asian remittances are expected to be depressed. This allowed the company to extend the 6-10% p.a. DPS growth guidance beyond 2024. Risk-reward skewed in favour of shareholders Overall, with a such a high capital return and such a low valuation attributable to the Asian exposures, we see the risk-reward skewed in investors'' favour. A highly adverse scenario appears to already be priced in. This allows investors to collect a highly attractive and sustainable yield, whilst any change in sentiment towards China could lead to material upside.
We have dropped our coverage of Ageas owing to internal reorganisation. Our rating, target price and estimates are therefore no longer valid.
We publish our new Ageas IFRS 17 model and reaffirm our BUY recommendation. Transitioning from the previous accounting standards to the new IFRS 17 framework is expected to drive up the projected profits. Ageas maintains a strong presence in the Asian market, with several JVs. These Asian investments collectively contribute a substantial proportion, approximately 45%, of the company’s operating profit. We expect this contribution to continue to grow, driven by the different growth dynamics in Asia and Europe.
Ageas’ results were mostly driven by the volatile Chinese business and a strong Non-Life segment. Nevertheless, in China, we noted the absence of a dividend remitted in H1 23, a delay that has affected several Chinese state-owned enterprises. It is important to be aware that the annual cash dividend for the year is unlikely to be affected, as these dividends are scheduled for H2. But this delay serves as a reminder that careful evaluation is necessary when valuing the Chinese segment.
Ageas released a surprising set of Q3 22 results in our view. Although it was negatively impacted by market turmoil in Asia and high inflation in the UK and Turkey, Ageas had warned about these effects a few days ago. Embedding these factors into the consensus (which had been published before the warning), Ageas would have beat estimates.
Ageas released a very strong set of Q2 results. Carried by Belgium and Asia, the firm beat market expectations. On a HY basis, Ageas remains in line with our expectations. Prospects for additional share buybacks have been tempered but we expect a dividend towards the high-end of the guidance.
Ageas’ Q1 22 results yielded mixed feelings. On the one hand, P&C has been surprisingly good but could revert to lower levels, we believe. On the other hand, Asia has been disappointing and could remain disappointing for quite some time considering the local context. Solvency improved and the trend could offer perspectives of shareholder rewards.
Ageas’ Q3 results have been surprisingly strong, beating by far consensus estimates. However, the deteriorating solvency ratio coupled with guidance left unchanged, while the insurer could have shown more optimism over the year-end result, leaves a glimpse of potential worries.
Ageas’ H1 21 results are not what we would have expected. Asia’s Life business came in disappointing and Non-life is expected to be heavily impacted in the next quarter. But, overall, the outlook remains the same and the €150m share buy-back will cheer investors up. Tough times to go through but we remain positive in the medium term.
Ageas’ performance for the first quarter of the year is very positive. We believe the worst turmoils to be past (Turkey FX impact, COVID-19 claims and high volatility on the markets) and, coupled with the recovery in economies and strong capital generation, we see the rest of 2021 as looking better than expected.
Ageas released net profit at €1,141m. The Non-Life business contributed significantly to this performance (up 49% to €391m), while the Life divisions suffered and posted a 32% drop to €569m. We appreciate the resilient top line and the €2.65 to be distributed per share. Ageas also announced the acquisition of a 40% stake in the Turkish Life insurance and pensions company AvivaSA for €142m. The insurer enters a new market, with rapid growth and without problems of low interest rates.
Despite the pandemic, Ageas was very active during 2020 to reinforce its positions in existing markets and to clean its balance sheet. There are no fears about the capacity of the insurer to generate cash and to distribute a dividend for 2020 earnings.
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