Set for flat costs and higher DPS
STOREBRAND Set for flat costs and higher DPS While the CMD provided more details of Storebrand’s capital release assumptions, in our view the overall guidance is broadly unchanged. We continue to believe the group will be able to outperform its capital generation guidance through 2020 under the latest 2year strategy, as it did in its two previous strategy periods. Management continues to target flat costs, in line with our estimate and implying a 6% uplift to consensus 2020e EPS. Our Solvency II ratio and dividend estimates are unchanged, and we reiterate our NOK95 target price and BUY recommendation.
Guiding flat nominal costs. While this is broadly in line with our estimate, we believe it represents a significant deviation from consensus, which forecasts a ~NOK200m increase in costs between 2018 and 2020. All else equal, this implies consensus EPS should come up by at least 6%.
NOK10bn of capital set to be released over next 10 years. Storebrand also reiterated much of the solvency capital requirement (SCR) outlook given at its 2016 CMD. It guided a reduction in the SCR relating to guaranteed products from NOK25bn to NOK15bn by 2027. With the reported equity allocation in the guaranteed segment also close to NOK25bn, at NOK23.6bn, we calculate a NOK10bn capital requirement reduction implies a ~NOK10bn lower equity requirement, increasing its dividend payout capacity. We continue to expect a 13%-point effect from management actions to boost the Solvency II ratio, indicating a NOK3bn faster capital release than Storebrand’s basecase scenario, which does not include any management actions. Note that management highlighted that it sees further upside potential to the guided figures given. We therefore stick to our NOK13bn capital release estimate for this period.
Investment case intact – BUY recommendation and NOK95 target price reiterated. We see significant upside potential to our target price, comprising the value of the DPS from the build-down of the guaranteed book (NOK19/share) and the fast-growing nonguaranteed segment (2018e P/E of 14x). Near-term, we see a potential share price catalyst in the Solvency II ratio beating expectations, as Storebrand continues to generate capital and optimise its solvency through balance-sheet adjustments.
BUY
Guiding flat nominal costs. While this is broadly in line with our estimate, we believe it represents a significant deviation from consensus, which forecasts a ~NOK200m increase in costs between 2018 and 2020. All else equal, this implies consensus EPS should come up by at least 6%.
NOK10bn of capital set to be released over next 10 years. Storebrand also reiterated much of the solvency capital requirement (SCR) outlook given at its 2016 CMD. It guided a reduction in the SCR relating to guaranteed products from NOK25bn to NOK15bn by 2027. With the reported equity allocation in the guaranteed segment also close to NOK25bn, at NOK23.6bn, we calculate a NOK10bn capital requirement reduction implies a ~NOK10bn lower equity requirement, increasing its dividend payout capacity. We continue to expect a 13%-point effect from management actions to boost the Solvency II ratio, indicating a NOK3bn faster capital release than Storebrand’s basecase scenario, which does not include any management actions. Note that management highlighted that it sees further upside potential to the guided figures given. We therefore stick to our NOK13bn capital release estimate for this period.
Investment case intact – BUY recommendation and NOK95 target price reiterated. We see significant upside potential to our target price, comprising the value of the DPS from the build-down of the guaranteed book (NOK19/share) and the fast-growing nonguaranteed segment (2018e P/E of 14x). Near-term, we see a potential share price catalyst in the Solvency II ratio beating expectations, as Storebrand continues to generate capital and optimise its solvency through balance-sheet adjustments.
BUY
Redigert 21.01.2021 kl 00:55
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