Axa has delivered a very strong set of H1 21 results. It looks to us as if the French insurer has fully recovered from the COVID-19 crisis, with small risk of a relapse, with Axa XL delivering what the market was expecting and (finally) propelling the P&C business as it should. The overall dynamics in the insurance industry looks favourable to believe in a bright outlook for the biggest French insurer.
Companies: Axa (CS:EPA)AXA SA (CS:PAR)
Axa’s Q1 2021 results and earnings’ call confirm our previous comments: 2021 is about restructuring towards its core markets while recovering from the COVID-19 crisis.
Hence, as sharply and thoroughly led as the French insurer is, its results do not come as a surprise and are fully in line with what we all expect.
AXA posted FY 2020 total revenues of €96,723m, down 1% on a comparable basis (down 7% on a reported basis). Underlying earnings dropped by 34% to €4,264m. Net income stood at €3,164m, down 18% yoy. The Solvency II ratio was 200%. A dividend of €1.43 per share will be proposed at the shareholders’ AGM. The bill for COVID-19 remained stable at €1.5bn with no significant impact from new Coronavirus outbreaks. Our model will be adjusted up.
Since his arrival, Thomas Buberl has been injecting new blood into Axa’s management. The possible arrival of Ramon Fernandez, as a member of the Board of Directors, would be good news. The quest for a new Chairman is a more complicated task.
Companies: AXA SA
AXA reported an 8% decline in its 9M revenues to €73,385m. The business mix continued to follow the projected trend, with lower G/A Savings (-23% to €6,782m) and higher Health (+4% to €757m) and Protection (+2% to €11,405m) sales. AXA XL’s revenues were up 1% to €13,960m while the management is taking action to enhance profitability and will inject €1bn into its capital. The Solvency II ratio was 180% and COVD-19 related claims were reaffirmed at €1.5bn.
AXA’s underlying earnings stood at €1,885m, -48% yoy. The impact of COVID-19 on profits was in line with the previously published guidance, at €1.5bn. Commercial lines, notably AXA XL, released a loss of €843m. The group’s net income stood at €1,429m, -39% yoy. The Solvency II ratio was 180%. No dividend to distribute in Q4 20 and the two strategic targets, relative to underlying earnings per share and adjusted ROE, were withdrawn. Our model will be refined.
AXA released its Q1 20 activity indicators. Revenues increased by 4% at constant FX but declined by 9% as reported to €31,669m. The insurer expects a material impact on the FY 20 earnings despite a resilient Q1. Significant claims from Event Cancellation and Business Interruption should be recorded in Q2. The Solvency II ratio dropped to 182%, but remained well within the targeted range. Our model is projecting an annual decline in net income by c. 33% to c. €2.7bn.
AXA posted FY 19 revenues of €103,532m, up 5% on a comparable FX. The underlying earnings were up 4% on a comparable basis to €6,451m, with a dominance of P&C and Health segments (> 62% of the group’s earnings). With the high frequency of natural disasters, the insurer stepped up measures to reduce AXA XL’s exposure to these risks, thereby lowering its 2020 profit guidance. FY 19 net income stood at €3,857m and a dividend of €1.43/share was proposed.
To reach its target of generating free cash flows of €28.32bn in 2016-20, AXA is selling businesses with reduced scale which consists of heavy-capital Life books. Bloomberg has reported that, in addition to Central and Eastern European activities that are under review, the Middle Eastern operations are also being reconsidered. Even if the two businesses are sold, the insurer will still be far from its targets. This gives credence to the hypothesis an asset management arm disposal.
With the acquisition of a 50% stake in AXA Tianping, the French company became the largest fully foreign-owned P&C operator in China. This move is explained by the importance of this market and its solid growth outlook. However, AXA has to deal with the need for a larger distribution network, rapid digitalisation and the ongoing price deregulation. In all, it is a positive strategic move with the expected significant positive long-term impact of the insurer’s figures.
AXA’s 9M 18 total revenues increased by 4% to €79,680m. The business mix continued its transformation with the preferred segments contributing up to 60% of the group’s revenues. AXL XL recorded an improvement in prices, but the adverse weather conditions in Q3 and the beginning of Q4 should lead to an excess of €400m compared to the normalised level for Nat Cats for H2 19. The Solvency II continued its downward trend, but remained within the targeted level.
AXA posted rapid growth in its sales to €57,949m, increasing 4% at constant FX. The underlying earnings were also solid and reached €3,620m (up 10% at constant FX). The decline in net income (-19% at constant FX to €2,333m) was largely due to the change in the fair value of derivatives and the deconsolidation of EQH. With the dominance of P&C business (55% of the group’s underlying earnings), the volatility in the insurer’s net result is not a surprise.
AXA’s Q1 19 total gross revenues increased by 2.7% to €34,953m on a comparable basis (up 13.5% as reported). The European markets, including France, contributed up to 55.7% to the group’s revenues. The integration of XL is visible and the P&C business represented 49.4% of total revenues vs. 39.5% last year. The insurer has not released its combined ratio for the period, making it difficult to appreciate the impact on operating earnings. AXA is progressing well towards the targeted new business m
AXA posted FY 2018 total revenues of €102,874m, up 4% on a comparable FX (up 4% on reported basis). For its first year in the group, AXA XL’ contributions to revenues amounted to €6,287m. Underlying earnings were up 6% on comparable bases (up 3% on reported basis) to €6,182m, their highest ever-reported level. However, the goodwill from AXA Equitable Holdings and other intangible assets reached €3,102m and affected the net income (-66% to €2,140m). A dividend of €1.34/share was proposed.
At its investors day, AXA increased its 2020 adjusted ROE target to 14-16% and the dividend payout to 50-60%. Debt gearing (25-28%), underlying EPS CAGR (3-7%) and cumulative FCF (€28-32bn) targets were confirmed. The new Solvency II range is now 170-220%. The insurer confirmed its rapid transformation towards a global P&C operator. We will update our figures, taking into consideration the new dividend payout range of 50-60%. Our opinion will remain positive.
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