Allianz, Axa: Insurer stocks with upside potential

Frankfurt, Munich High and continuous dividend payments make shares in insurance companies an attractive investment for many investors. With dividend yields of five percent and more, the sector is particularly popular in the low-interest environment. Another important aspect: the stocks of some European insurance groups performed comparatively poorly in 2021. Analysts are now recognizing catch-up potential.

The Euro Stoxx 600 Insurance (SXIP), a sub-index of the Euro Stoxx 600, rose by 21 percent last year including reinvested dividends. However, the total return of the Euro Stocks Banks Index was twice as high.

Berenberg analyst Michael Huttner cites other reasons why he thinks insurer stocks are attractive now: It’s a combination of reduced costs, improved capital allocation and higher cash flows, which subsequently lead to rising dividends and share buybacks.

While share prices in many sectors are suffering from the central banks, especially the Fed in the USA, ending their ultra-loose monetary policy more quickly, rising interest rates mean better investment opportunities for insurers, which is supporting prices.

Top jobs of the day

Find the best jobs now and
be notified by email.

In the new year 2022, shares are therefore of particular interest that have both a certain price potential and a solid dividend yield. Aviva, Axa, Legal & General and Sampo stand out among the ten individual stocks with the greatest weight in the SXIP, which many analysts recommend buying in addition to the criteria mentioned.

Some analysts also have the DAX group Allianz on their buy list, even if the European competition sometimes performs better in relation to the key figures mentioned. An overview in alphabetical order:

alliance-Aktie: When will the conflict in the USA be resolved?

The Allianz share has performed poorly in relation to its competitors over the past year. For example, while the Italian Generali group gained more than 30 percent, the Munich-based company barely made any progress with a plus of 3.5 percent.

Analysts see one reason in the unresolved problems in the USA. At the subsidiary AGI there are still possible billions in payments in connection with failed hedge fund strategies. If a solution is in sight here – Huttner von Berenberg expects this when the figures are presented on February 17th – this could give the share new momentum.

More than 70 percent of the analysts who monitor the Dax group, according to the data provider Bloomberg, therefore advise buying the share. For Huttner, she is even one of the top picks in the sector.

Two Deutsche Bank analysts have just increased their price target for Allianz shares from 240 to 250 euros. 2022 will be a volatile year for insurers, especially because of the expected turnaround in interest rates and the associated inflation debate. However, rising bond yields are generally good for the industry’s balance sheets. “Against this background, Allianz is one of the strongest recommendations as a value and in anticipation of medium-term price drivers,” they sum up.

Investors are also counting on an increase in the dividend, which was most recently EUR 9.60 per share. According to the new strategy, the group wants to increase the dividend by at least five percent annually. The payout ratio is said to be 50 percent of earnings, adjusted for exceptional and volatile elements.

Huttner also expects another share buyback program that could total two billion euros. The five share buyback programs of the past few years have all had a positive effect on the price development.

In his view, the group should be able to gain leeway through further sales or reinsurance of old, high-yield life insurance portfolios. At the end of last year there were solutions for stocks in the USA and Switzerland.

Aviva share: Planned successful sale of peripheral areas

Huttner describes shares in the British insurance group Aviva as another top pick. Overall, 70 percent of the analysts recommend buying the share. Even the experts who aren’t quite so optimistic are paying tribute to the bright prospects. Jefferies analyst Philipp Kett recently raised his price target from 425 to 435 pence despite his hold recommendation. The price is currently trading at this level.

The paper has already increased by more than a quarter in 2021 and is no longer valued cheaply on average over the long term. However, Huttner believes the market is likely still underestimating the benefits of the announced buyback program. Aviva aims to return a total of £4 billion to shareholders by June 2022 – in the form of share buybacks and dividends.

graphic

Aviva is sitting on a bulging till after a string of fringe sales. Last year, the insurer sold, among other things, its subsidiary in Poland and parts of its Italian business to Allianz. The investor Cevian had therefore originally demanded that the group return five billion pounds to the shareholders.

axa-Share: Share buybacks and focus on sustainability

The French are also characterized by many buy recommendations: more than four fifths of the analysts recommend buying. The Axa share has already gained more than a third in 2021. An analyst, Gregoire Hermann from Alphavalue, has meanwhile put the stock on “sell”.

Nevertheless, the two Deutsche Bank analysts Hadley Cohen and Oliver Stelle raised their buy recommendation again slightly at the beginning of the year, from EUR 28 to EUR 29.50.

Further price potential could also arise here from the planned share buybacks. At the beginning of November, Axa announced a €1.7 billion buyback program. This year, the group wants to follow up with a program of up to 500 million euros.

graphic

Similar to Allianz, Axa is also trying to find solutions for old, high-interest life insurance portfolios in order to free up the capital tied up and use it more efficiently. Berenberg analyst Huttner expects further transactions in Belgium, Switzerland and Italy.

The French could also benefit from the change that has been initiated in the financial industry towards more sustainability in investments. According to Claudia Gaspari, the insurance sector already has the best sustainability profile among sectors with a traditionally high return on shares.

The analyst at the British investment bank Barclays assumes that insurers will play a leading role in responsible investing in the future. Among other things, she sees Axa at the forefront.

Legal & General shares: Convinced analysts

The British insurer’s shares gained 11.5 percent in 2021. According to Philipp Kett from the US investment bank Jefferies, the way up is not over yet. He raised the fair value of the share, which was last trading at around 295 pence, to 340 pence in the autumn. Experts see the greatest advantage compared to the competition in the significantly lower risks in the investment portfolio.

graphic

It is above all the strong conversion towards returns that makes the experts confident. “Management has consistently strategized towards double-digit earnings per share and strong dividend growth,” said Citi Bank’s Andrew Baker. According to Bloomberg estimates, investors can expect a dividend yield of around 6 percent this year.

Sampo stock: Interesting change

The shares of the Finnish insurance group increased by 27.5 percent in the past year. According to data provider Bloomberg, three quarters of analysts still recommend buying.

The company is also interesting because it is changing more and more from a financial conglomerate to a pure insurer. The group is gradually disposing of its stake in Nordea Bank. Excess capital from this transaction is also intended to go to the shareholders.

graphic

The group includes the Swedish property and casualty insurer If. Sampo also recently announced that it would take over the British digital insurer Hastings completely and holds around 47 percent in the Danish insurer Topdanmark.

If Sampo also wants to take over Topdanmark completely, the insurer would have less money for distributions to shareholders, according to a Berenberg analysis from December. Nevertheless, the experts continue to expect share buybacks; a program worth 750 million euros has been running since October. Based on the Bloomberg estimates, investors can also expect a dividend yield of over five percent.

More: German insurers expect growth of up to three percent in 2022

.
source site-11