Munich Re is one of the largest reinsurers globally and a major player in both Property & Casualty (P&C) and Life & Health (L&H) Reinsurance markets. It also owns a primary insurance business ERGO, with significant operations in Germany and other European markets in both P&C and L&H.
Munich Re released its Q119 results, which were in line with our expectations. More importantly management maintained their full year forecasts unchanged.
Net income for the quarter was reported at €633m in line with consensus of €632m. Overall the company looks well positioned at this stage to achieve its €2.5bn target for the FY19 and €2.8bln for FY20.
Following the results and the strong performance of the shares, we increased our price target from €200 to €220 and reduced our stance from a buy to a hold. The increase in price target came from an improvement in the P/E multiple from 11x to 12x in line with the forward multiple we used to value Allianz. We maintain a hold recommendation despite the shares trading close to our price target because we are of the view that management should be able to reach their targets.
Also, Munich Re is one of the most financially strong companies in all of European Insurance, with a Solvency II ratio of 250% and a reputation for conservatism in all aspects of the business. The group also has a buyback program and a dividend yield north of 4%.
Dividends
Munich Re's annual general meeting on April 30, 2019 voted to distribute a dividend of € 9.25 per share for the business year 2018 to the shareholders.
Share buybacks
Munich Re's Board of Management has resolved on March 19, 2019 to acquire in the period between 2 May 2019 and, at the latest, the next annual general meeting on April 29, 2020 own shares for a maximum total purchase price of €1bn via the stock exchange.
Price target
We value Allianz at 12x 2019 expected earnings (€18.33), which is reasonable given the constancy of earnings growth. Based on our in-house earnings discount model we set a one year price target of €220 per share.
Risks to our model
• Global macro-economic environment continues deteriorating
• A worse than expected expense ratio in the Property and Casualty Business
• Higher than expected natural catastrophe activity
• A prolonged period of low interest rates, or very significant financial market volatility
About the company
Munich Re Group or Munich Reinsurance Company is a reinsurance company based in Munich, Germany. It is one of the world’s leading reinsurers. ERGO, a Munich Re subsidiary, is the Group’s primary insurance arm. Munich Re's shares are listed on all German stock exchanges and on the Xetra electronic trading system. Munich Re is included in the DAX index at the Frankfurt Stock Exchange, the Euro Stoxx 50, and other indices.
Disclaimer:
This article was issued by Kristian Camenzuli, investment manager at Calamatta Cuschieri. For more information visit, https://cc.com.mt/ . The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.