Gjensidige – Initiation of Coverage
Recommendation: SELL – Target NOK 122
Prepared by Analyst: Geir Kristiansen, Fondsfinans AS, tel: +47 23 30 11 30, e-mail: [email protected]
Shelter from the storm
23.02.2015
This report was prepared by an analyst engaged by Fondsfinans AS, the Norwegian affiliate of Fondsfinans Inc., who is not registered as a research analyst with FINRA or subject to FINRA rules governing research. See page 31 of this report for Important Disclosure Information.
Gjensidige is a safe haven when falling oil price creates waves in the Norwegian stock
market. However, the share has become pricy and we expect falling profitability the
coming years due to the low interest rate environment and increasing competition. We
rate the stock SELL with NOK 122 price target
Profitable market leader
-
Utilize economy of scale to generate profitable growth in other Nordics and Baltic
-
Lowest cost ratio among seven large, Nordic peers
-
Challenged by smaller low-cost providers, possible threat from European insurers
Low interest rates are challenging
-
Lower returns from the relatively low-risk investments portfolio
-
We expect about 4% investment return in our forecast horizon
-
Underwriting result from general (non-life) insurance has become the main contributor to profit
Fully priced given our assumptions – and company’s guidance
-
Sustainable RoE of 16%, Gjensidige’s long-term target is 15%
-
Long-term combined ratio of 90%, company’s guidance is 90-93%
-
Dividend payout ratio close to 80% , guidance > 70%
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INVESTMENT CASE
0 1 2 3 4 5 6 7 8 9 0 5 10 15 20 25 30 35 40 45 50 P/ B RoE TOP GJF TRYG Amlin Zurich RSA AXA
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Source: BloombergVALUATION
Nordic insurance priced at premium
Peer group valuation – consensus estimates
Higher RoEs in the Nordic region give higher
valuations
-
Consolidated markets in the Nordic region
-
Loyal customers due to low commoditization
-
Lower cost ratios due to 80% direct distribution
vs 30% in EU
Com pany Share Price P/E 14E P/E 15E P/E 16E P/B 14E P/B 15E P/B 16EYield 14E, % Yield 15E, % Yield 16E, % ROE 2014E ROE 2015E ROE 2016E
Gjensidige 131.3 16.06 16.75 16.61 2.94 2.92 2.87 4.13 5.38 5.09 16.88 16.69 17.28 Tryg 819 20.35 20.92 19.55 4.30 4.44 4.38 3.47 3.61 3.85 21.36 21.10 22.73 Topdanmark 227.8 15.83 18.28 16.98 4.69 4.68 4.36 0.00 0.00 4.61 29.57 25.47 26.77 Amlin 5.165 10.43 12.42 12.42 1.45 1.40 1.35 5.85 5.52 5.75 14.75 12.04 12.10 AXA 21.08 10.14 9.55 9.20 0.93 0.89 0.85 4.26 4.59 4.91 9.74 9.56 9.52 RSA Insurance 4.526 20.48 13.12 12.01 1.17 1.13 1.10 1.35 3.45 4.29 8.73 9.80 9.59 Zurich Insurance 306.8 11.76 10.98 10.49 1.30 1.27 1.22 5.72 5.90 5.97 11.52 11.76 11.82 Admiral Group 14.67 14.44 16.07 15.62 7.50 7.32 6.91 6.71 6.19 6.33 53.21 45.88 46.05 Average 14.94 14.76 14.11 3.04 3.01 2.88 3.93 4.33 5.10 20.72 19.04 19.48 Median 15.14 14.59 14.02 2.19 2.16 2.11 4.19 4.99 5.00 15.81 14.36 14.69 ADM
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Source: Fondsfinans research
Fair value NOK 122 per share
- Average of two models
- Slightly stretched in a SOTP model
Sensitivity to sustainable RoE
- 1%-point changes fair value by 6%
Key assumptions
- Sustainable RoE: 16% (target 15%)
- Cost of equity: 6.5%
- Perpetual growth: 1.5%
VALUATION
Fair value of NOK 122 per share
Valuation models
Dividend discount m odel Target price
Risk free interest rate 1.50 % DDM 50 % 107
Market risk premium 6.5 % P/B 50 % 125
Beta (adjusted) 0.77 Target price ex div. (aver) 116
Cost of equity 6.5 % Dividend 2014 5.9
Perpetual grow th 1.5 % Target price 122
Fair value per share 107
P/B m ultiple m odel Sensitivity analysis on pricing Adjusted ROE 16.0 % P/B m odel Perpetual grow th rate
Perpetual grow th 1.5 % Cost of equity 0.5 % 1.5 % 2.5 %
Cost of equity 6.5 % 7.5 % 96 105 117
Fair P/B m ultiple 2.90 6.5 % 112 125 146
Fair value per share 125 5.5 % 134 157 195 SOTP-valution model (NOKm) Net profit Multiple Value Insurance u-w result after tax (27%) 1,687 20 33,748
Pension and savings (27%) 71 25 1,783
Online retail banking (27%) 206 12 2,474
Investments (18%) 1,956 12 23,469
Other (140) 10 -1,402
Group net profit 3,781 60,072
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Source: Gjensidige, Fondsfinans research
Ordinary dividend payout ratio of
above 70%
Stable dividends – may imply payout
ratio > 100% certain years
Excess capital will be paid out as
extra-ordinary dividends
- NOK 4 in 2014
- Possible capacity approx. NOK 1.5 in
yearly e.o. dividends coming years
- Assuming no change in regulations
CAPITAL STRATEGY - DIVIDENDS
New capital strategy from 2014 – Excess equity will be paid
out as dividends
Dividend and payout ratio
4.7 4.6 6.9 4.4 9.9 5.9 5.9 5.9 0% 20% 40% 60% 80% 100% 120% 140% 0.00 2.00 4.00 6.00 8.00 10.00 12.00
2010 2011 2012 2013 2014 2015E 2016E 2017E
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Source: Gjensidige, Fondsfinans research
CAPITAL STRATEGY - SOLVENCY
Solvency II expected to be positive for the legal capital surplus
-Minimum A rating from S&P remains key constraint
Capital situation per 31.12.14 (NOK bn)
S&P A-rating is a constraint to
dividend capacity
-
Required by some large customers
-
Required as reassurance company
-
Gjensidige Bank/Subordinated debt
Solvency II uncertainty +/- NOK 3 bn
-
Risk reducing effect of deferred tax
-
+ NOK 1-2 bn
-
Valuation of premium provisions
-
+ NOK 0.5-1 bn
-
Natural perils fund/guaranty scheme
-
- NOK 1.9/0.6 bn
-
Tax issues
-
-NOK 0.6-1.2 bn
Strategic buffer
-
Meet regulatory uncertainty
-
Support growth and acquisitions
-
Stabilize dividend over time
4.4 10.8 15.8 5.6 11.2 0.8 1.3
Legal perspective Interrnal perspective S&P perspective Capital requirement Capital surplus Tecnical buffer Stratecic buffer
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Source: Gjensidige, Fondsfinans research
One of Norway’s strongest brands
Almost 200 years of history in
non-life
Other business areas are growing
BUSINESS OVERVIEW
Broadening the scope of business
Contribution to pretax-profit
‐1,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
NO
K
m
Other Investments Bank Pension and savings Underwriting resultGJ
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Source: Gjensidige, Fondsfinans research
Low-cost distribution model
- Direct distribution
- Multi channel: Internet (16% of new
customers), call centers and
branches
- Branch network reduced from about
200 to 36 the last 15 years
Other channels:
- Commercial Norway has 3% of
customers/18 of premiums via
brokers
- Brokers and agents have a larger
share of business outside Norway,
particularly in the Baltic
DISTRIBUTION MODEL
Low cost distribution model
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Source: GjensidigeNORDIC AND BALTIC PERSPECTIVE
Gjensidige focuses on the Nordic and Baltic markets
Nordic and Baltic regions
Gjensidige - Net earned premiums
s
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E
Gjensidige
6 %
If
6 %
Tryg
19 %
Topdanmark
17 %
Alm. Brand
10 %
Codan (RSA)
12 %
Other
30 %
Gjensidige
2 %
If
18 %
Läns‐
försikringar
30 %
Folksam
16 %
Trygg
Hansa
16 %
Other
18 %
Gjensidige 25 % If 23 % Tryg 14 % SpareBank 1 10 % Other 28 % Source: GjensidigeDenmark
MARKET SHARES GENERAL INSURANCE
Will the cozy (near) oligopolies prevail?
Norway
Baltics
Sweden
Gjensidige
7 %
If
14 %
Ergo
12 %
BTA
14 %
PZU
7 %
RSA
23 %
Other
23 %
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The Herfindahl-Hirscman
index*
-
Norway = 1524;
Moderately concentrated
-
Sweden > 1800; Highly
concentrated**
Strong underwriting results
-
Low competition
-
Attract new players
*Sum of the square of individual market shares in % **As defined by US Department of Justice
NORWEGIAN NON-LIFE SECTOR
Many players, few large – close to oligopoly
Norwegian non-life insurance companies
Market shares in % Company 2012 2013 2014 If Skadeforsikring 24.3 23.9 22.8 Storebrand 2.4 2.5 2.6 Gjensidige 25.2 25.2 25.2 Tryg 14.9 14.3 13.8 SpareBank 1 Forsikring 10.3 10.4 10.1 Jernbanepersonalets forsikring 1.2 1.3 1.3 Codan 3.0 3.2 3.2 Protector Forsikring 2.3 2.4 2.6 KLP Skadeforsikring 1.4 1.5 1.6 DNB Forsikring 4.3 4.5 4.8 Nordea 0.2 0.2 0.2 Danica 0.1 0.1 0.1 Eika Forsikring 4.1 4.1 4.1 Telenor Forsikring 0.0 0.0 0.0 NEMI 1.0 1.0 0.9 AIG Europe 1.0 0.8 0.9 Oslo Forsikring - 0.2 0.2 Inter Hannover - 0.1 0.1 ACE European Group 0.1 0.1 0.1 Frende Skadeforsikring 2.0 2.2 2.4 KNIF Trygghet Forsikring 0.3 0.5 0.5 Landbruksforsikring 0.5 0.6 0.4 Møretrygd 0.1 0.1 0.1 Troll Forsikring - 0.0 0.1 Euro Insurance LTD - 0.1 0.2 Skogbrand 0.0 0.0 0.0 W R Berkley - 0.3 0.2 OBOS Skadeforsikring - 0.2 0.2 Vardia - - 1.3 I ALT 100.0 100.0 100.0
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0 % 5 % 10 % 15 % 20 % 25 % 30 % 35 % 40 % 45 % 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
If Gjensidige SpareBank 1 Tryg Other
Source: FNO
Small insurance companies are
increasing market share
- Cherry picking
- Low-cost providers
- Oligopoly gives strong margins in
sector
The break of the oligopolies
- High margins may attract intl. players
- The incumbents loose share to smaller,
domestic players
Gjensidige’s market shares have
stabilized recently
Market shares P&L ex motor
GENERAL INSURANCE
Smaller insurance companies are growing
Market shares motor insurance
0 % 5 % 10 % 15 % 20 % 25 % 30 % 35 % 40 % 45 %
If Gjensidige SpareBank 1 Tryg Other
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Source: Gjensidige, Fondsfinans research
Total market in excess of NOK 50bn
A growing market
- 15 year average growth of 6.5%
- 5 year average growth of 5.2%
- Will grow with GDP in the long-run
Motor insurance is 39% of the
market, fire insurance is another 35%
GENERAL INSURANCE
A growing General Insurance market in Norway
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Source: FNOClaims grow at a slower pace than
premiums
- 15 year average growth of 4.8%
- 5 year average growth of 2.8%
Motor insurance is 38% of claims,
fire insurance is another 35%
GENERAL INSURANCE
Claims in Norway have grown at a slower pace than
premiums
Mo
n
thly
m
in
imu
m
te
mp
er
atur
es
(O
s
lo
)
Source: Norwegian Meteorological Institute
Monthly percipitation (Oslo)
WEATHER
Warmer and wetter weather leads to moderately increasing
number of claims
Monthly minimum temperatures (Oslo)
Number of water damages (Norway)*
Number of nature perils claims (Norway)*
Source: Gjensidige
Nordic
GJENSIDIGE - GENERAL INSURANCE
Split earned premiums
Private
Baltics
Commercial
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*Adjusted for comparability with Norwegian and Swedish GAAP Source, Protector Forsikring, Fondsfinans research
Gjensidige has low combined ratio
compared to major Nordic peers
- Efficient distribution model
- Local knowledge and big data
- More efficient claims handling
- Reduced costs per claim by 10% since 2011
Gjensidige has improved performance
- Claims ratio 2014: 70.2%
- Cost ratio 2014: 15.6%
- Combined ratio: 85.9% vs 91.6% in 08-13
Avg. claims ratio 2008-2013
GENERAL INSURANCE
Combination of low combined ratio and stable market
shares indicate strong risk selection and pricing skills
Avg. cost ratio 2008-2013
74.1 % 76.2 % 76.3 % 78.8 % 78.7 % 80.5 % 81.3 % 70% 72% 74% 76% 78% 80% 82% 15.3 % 15.6 % 16.2 % 16.8 % 19.0 % 21.2 % 26.2 % -2.5 % -2.0 % -1.5 % -1.0 % -0.5 % 0.0 % 0.5 % 1.0 % 1.5 % 2.0 % 0% 5% 10% 15% 20% 25% 30%
2013 %-point change since 2008
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Source: Gjensidige, Fondsfinans research
Gjensidige’s targets toward 2018:
Becoming the most customer
oriented general insurer in the Nordic
region
Cost ratio: 15%
Combined ratio: 90-93%
- Assuming normal level of large claims
- Lower than normal in 2014, higher in 2013
- Assuming zero run-off gains
- Av gains since 2008; about 2%
- Av. gains since 2000: about 1%
- Run-off gains in the medium term
- 1% point change in combined ratio
changes EPS by 4%
GENERAL INSURANCE
General Insurance – Main profit contributor
General Insurance – P&L
General insurance total 2012 2013 2014 2015E 2016E 2017E
Earned premiums, net 17,610 18,789 20,257 21,140 22,077 22,913
Grow th yoy % 0.5 % 6.7 % 7.8 % 4.4 % 4.4 % 3.8 % Claims incurred -12,171 -13,434 -14,227 -15,520 -16,249 -17,184 Claims ratio 69.1 % 71.5 % 70.2 % 73.4 % 73.6 % 75.0 % Corporate centre -374 -657 -432 -384 -421 -433 Operating expenses -2,831 -3,205 -3,168 -3,309 -3,471 -3,535 Cost ratio 16.08 % 17.06 % 15.64 % 15.65 % 15.72 % 15.43 % Underwriting result 2,608 2,150 2,862 2,312 2,357 2,194 Grow th yoy % 84 % -18 % 33 % -19 % 2 % -7 % Combined ratio % 85.2 % 88.6 % 85.9 % 89.1 % 89.3 % 90.4 %
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Source: Gjensidige, Fondsfinans research
Low premium growth
Focus on defending market leader
status (market share 23.6%)
- Gjensidige Foundation’s customer
dividend model is attractive both for
private and corporate customers; in
2013 and 2014 approx. NOK 2bn
distributed to general insurance
customers, see page 29
Effective distribution model helps
sustain a low, albeit increasing
combined ratio in 2015 and 2016
GENERAL INSURANCE
Private Norway – Strong profitability
Private Norway – P&L
Private Norway 2012 2013 2014 2015E 2016E 2017E
Net earned premiums 7,978 7,930 8,124 8,307 8,515 8,727
Grow th yoy % -1.3 % -0.6 % 2.4 % 2.3 % 2.5 % 2.5 % Grow th qoq % Claims incurred -5,312 -5,467 -5,469 -5,938 -6,131 -6,372 Claims ratio 67 % 69 % 67 % 71 % 72 % 73 % Operating expenses -1,065 -1,027 -1,032 -1,052 -1,073 -1,095 Cost Grow th -13 % -4 % 0 % 2 % 2 % 2 % Cost ratio 13.3 % 13.0 % 12.7 % 12.7 % 12.6 % 12.5 % Underwriting resultat 1,601 1,305 1,624 1,317 1,310 1,261 Grow th yoy % 35 % -18 % 24 % -19 % 0 % -4 % Combined ratio 80 % 82 % 80 % 84 % 85 % 86 %
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Source: Gjensidige, Fondsfinans research
Underwriting discipline
- Utilize market leader position (27.8%
market share)
- Increase premiums to ensure good
profitability when needed
- Improve competitiveness in
attractive segments
Strong cost control
We expect combined ratio < 90%
GENERAL INSURANCE
Commercial Norway – The market leader must lead
Commercial Norway – P&L
Commercial Norway 2012 2013 2014 2015E 2016E 2017E
Net earned premiums 5,747 7,022 7,338 7,521 7,709 7,902
Grow th yoy % 6.2 % 22.2 % 4.5 % 2.5 % 2.5 % 2.5 % Grow th qoq % Claims incurred -4,151 -5,208 -5,350 -5,615 -5,853 -6,158 Claims ratio 72 % 74 % 73 % 75 % 76 % 78 % Operating expenses -700 -821 -847 -864 -882 -899 Grow th -5 % 17 % 3 % 2 % 2 % 2 % Cost ratio 12 % 12 % 12 % 11 % 11 % 11 % Underwriting resultat 896 993 1,140 1,041 974 845 Grow th yoy % 127 % 11 % 15 % -9 % -6 % -13 % Combined ratio % 84 % 86 % 84 % 86 % 87 % 89 %
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Challenger
- 7% market share in Denmark
- 2% market share in Sweden
Strong growth
- Driven by increased market share
- Increasing economies of scale
GENERAL INSURANCE
Nordic – Growing market shares
Nordic – P&L
Nordic 2012 2013 2014 2015E 2016E 2017E
Net earned premiums 3,448 3,326 4,272 4,591 4,924 5,318
Grow th yoy % -5.1 % -3.5 % 28.4 % 7.5 % 7.3 % 8.0 % Claims incurred -2,416 -2,417 -3,031 -3,412 -3,555 -3,923 Claims ratio 70 % 73 % 71 % 74 % 72 % 74 % Operating expenses -566 -567 -712 -793 -809 -825 Grow th -10 % 0 % 26 % 11 % 2 % 2 % Cost ratio 16 % 17 % 17 % 17 % 16 % 16 % Underwriting resultat 466 342 529 386 561 570 Grow th yoy % 516 % -27 % 55 % -27 % 45 % 2 % Combined ratio % 86 % 90 % 88 % 92 % 89 % 89 %
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Acquisition PZU Lietuva (Lithuania)
- Increase market share to 13% (7%)
- Needs to be restructured
- Drag on profit until 2018
Competitive market
Growth in the Baltic region may be
affected by the crisis in Russia
GENERAL INSURANCE
The Baltic – Entering restructuring phase
Other regions – P&L
Baltic 2012 2013 2014 2015E 2016E 2017E
Net earned premiums 437 511 523 721 929 966
Grow th yoy % 10.4 % 16.9 % 2.4 % 37.9 % 28.8 % 4.0 % Claims incurred -293 -343 -377 -555 -709 -731 Claims ratio 67 % 67 % 72 % 77 % 76 % 76 % Operating expenses -126 -133 -145 -215 -287 -283 Grow th 3 % 6 % 9 % 48 % 33 % -1 % Cost ratio 29 % 26 % 28 % 30 % 31 % 29 % Underwriting resultat 19 36 1 -49 -67 -48 Grow th yoy % 530 % 89 % -98 % -8201 % 37 % -28 % Combined ratio % 96 % 93 % 100 % 107 % 107 % 105 %
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Source: Gjensidige, Fondsfinans research
Defined contribution products only
- Fee based/No guaranteed return
- Growing market
- Low risk/Low capital requirement
Fourth largest player with NOK
30bn under management
Support 15% RoE target
PENSIONS AND SAVINGS
Pensions and Savings – Focus on fund management
Pensions and Savings - P&L
NOKm 2012 2013 2014 2015E 2016E 2017E
Earned premiums 681 904 1,262 1,693 2,182 2,725 Grow th yoy % 28 % 33 % 40 % 34 % 29 % 25 % Claims incurred -575 -780 -1,126 -1,515 -1,952 -2,437 Claims ratio 84 % 86 % 89 % 89 % 89 % 89 % Operating expenses -137 -182 -181 -210 -214 -218 Cost Grow th 31 % 33 % -1 % 16 % 2 % 2 % Underwriting result -31 -58 -45 -31 17 70 Grow th yoy % 226 % 84 % -22 % -31 % -153 % 324 % Management income 40 82 23 108 116 126 Net financial income 18 25 35 21 21 21 Other income 25 0 8 0 0 0 Other expenses -33 0 20 0 0 0
Pre tax profit 18 50 43 98 154 217
Grow th yoy % 21 % 173 % -13 % 125 % 58 % 41 %
AuM 21,767 27,138 33,655 39,837 46,019 52,200
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Source: Gjensidige, Fondsfinans research
Cross-selling to general insurance
retail customers
- Not traditional bancassurance
- 46% of bank customers are
insurance customers
Cost-effective
- Multi-channel distribution
- Scalable model
Support 15% RoE target
BANKING
Retail banking – Cost-effective business model
Retail banking – P&L
NOKm 2012 2013 2014 2015E 2016E 2017E
NII 443 546 614 655 696 711
NII margin, annualized % 2.74 % 2.63 % 2.37 % 2.26 % 2.19 % 2.09 %
Net financial income ao. 45 53 49 52 49 47 Operating expenses -306 -341 -358 -358 -358 -358 Loss on loans -68 -67 -52 -67 -106 -118
Loss percentage 0.42 % 0.32 % 0.20 % 0.23 % 0.33 % 0.35 %
Pre tax profit 113 191 254 282 281 282
Gross lending IB 15,019 17,324 24,194 27,547 30,577 33,023 Additions 2,305 6,870 3,353 3,030 2,446 1,981 Gross lending UB 17,324 24,194 27,547 30,577 33,023 35,004 Lending growth 15 % 40 % 14 % 11 % 8 % 6 % Deposits IB 9,776 11,581 12,953 16,703 18,540 20,209 Additions 1,805 1,372 3,750 1,837 1,669 2,021 Deposits UB 11,581 12,953 16,703 18,540 20,209 22,230 Deposit growth 18 % 12 % 29 % 11 % 9 % 10 %
Deposits to loans ratio % 67 % 54 % 61 % 61 % 61 % 64 %
Equities
7 %
Money
market
17 %
Current and
other bonds
24 %
Bonds held
to maturity
33 %
Real estate
12 %
Hedge funds
4 %
Other
3 %
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Source: Gjensidige, Protector Forsikring, Fondsfinans research
Return per asset class
INVESTMENTS
Investments – Average performer, defensive portfolio
Peers - Avg. investment return 2008-2013
Investment portfolio
Gjensidige’s investment return the last 5 years represents the median compared to Nordic peersGjensidige’s investment return the last
5 years represents the median
compared to Nordic peers
4.3% return in 2014
2012 2013 2014 2015E 2016E 2017E
Equities 7.3 % 4.2 % 9.4 % 9.9 % 7.9 % 7.9 %
Associated 9.2 % 9.7 %
Money market 2.6 % 1.8 % 2.2 % 1.6 % 2.0 % 2.0 %
Current bonds 5.6 % 1.4 % 1.4 % 1.6 % 1.7 % 1.8 %
Bonds held to maturity 5.0 % 4.9 % 4.5 % 3.9 % 3.8 % 3.7 %
Real estate 4.7 % 5.8 % 9.4 % 8.7 % 6.8 % 6.0 %
Hedge find and other 17.9 % 20.8 % 14.9 % 9.9 % 9.9 % 9.9 %
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Source: Gjensidige, Fondsfinans research
Gjensidige is a safe haven when
falling oil price creates waves in the
Norwegian stock market
From 2014, underwriting results in
general insurance is expected to be
a larger contributor to profit than
returns from the relatively low-risk
investments portfolio
A low cost multi-channel distribution
model is in our view a key success
factor for Gjensidige
We base our NOK 122 target price
on a sustainable RoE of 16%, higher
than Gjensidige’s target of 15%
SUMMARY
A low risk investment at a too high price
Key numbers
NOKm 2014 2015E 2016E 2017E 4Q14 1Q15E
Private Norw ay 1,624 1,317 1,310 1,261 449 159
Commercial Norw ay 1,140 1,041 974 845 265 121
Other 98 -46 73 88 93 -53
Underw riting result 2,862 2,312 2,357 2,194 807 227
Combined ratio 85.9 % 89.1 % 89.3 % 90.4 % 84.4 % 95.5 %
Pension and savings 43 98 154 217 -16 26
Online retail banking 254 282 281 290 49 80
Investments 2,427 2,385 2,340 2,388 367 693
Other -187 -192 -192 -192 -48 -48
Pre tax profit 5,400 4,885 4,940 4,898 1,159 978
Tax 1,210 1,095 1,107 1,098 195 219 Net profit 4,190 3,790 3,833 3,800 964 759 EPS 8.4 7.6 7.7 7.6 1.93 1.52 DPS 9.90 5.90 5.90 5.90 P/E 14.9 17.4 17.2 17.4 Dividend yield % 7.9 % 4.5 % 4.5 % 4.5 % ROE 17.5 % 17.2 % 16.7 % 15.0 % P/B 2.88 2.93 2.82 2.43
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ESTIMATES
Balance sheet
Source: Gjensidige, Fondsfinans research
NOKm 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
ASSETS Intangibles 1,508 2,581 3,576 3,391 3,700 3,943 3,943 3,943 3,943 Investments in associates 3,783 4,276 4,533 5,036 4,772 44 44 44 44 Investment in properties 5,510 5,900 5,248 4,627 4,644 6,104 6,696 7,200 7,667 Other 1,445 2,213 516 258 543 679 679 679 679 Non-current assets 12,246 14,969 13,874 13,311 13,660 10,769 11,362 11,865 12,332
Shares, bonds and similar 23,291 23,209 24,316 24,532 28,641 31,719 32,758 33,833 34,985
Bonds held to maturity 15,816 14,498 11,693 9,264 5,211 2,956 3,004 3,056 3,111
Loans and other receivables 13,350 19,538 24,457 32,397 42,692 46,970 50,000 52,446 54,427
Receivables related to operations/reinsurance 3,436 3,927 3,791 4,113 4,291 4,630 4,630 4,630 4,630
Cash and cash equivalents 3,104 2,890 3,513 2,332 2,729 2,404 1,400 2,439 6,395
Other 3,627 5,076 6,902 8,260 11,722 14,535 14,535 14,535 14,535
Financial assets 62,623 69,138 74,673 80,896 95,287 103,213 106,326 110,938 118,083 TOTAL ASSETS 74,869 84,107 88,547 94,207 108,946 113,982 117,688 122,802 130,415 EQUITY AND LIABILITIES
Share capital 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Other equity 21,005 22,138 22,283 24,618 25,288 20,657 21,497 22,380 26,180
Equity 22,005 23,138 23,283 25,618 26,288 21,657 22,497 23,380 27,180
Provision for unearned premiums 7,672 9,078 9,531 10,142 11,049 11,945 12,597 13,074 13,576
Claims provision 25,857 28,339 29,962 29,562 31,750 32,927 34,727 36,041 37,423
Pension liabilities 774 705 952 138 164 590 590 590 590
Other 214 258 302 271 250 416 416 416 416
Provision for liabilities 34,517 38,380 40,746 40,112 43,213 45,878 48,330 50,121 52,004
Deposits from and liabilites to customers 6,550 9,120 9,776 11,580 14,938 16,703 18,540 20,209 22,230
Interest bearing liabilities 4,916 5,255 5,263 5,356 9,772 9,543 10,330 11,181 12,103
Other 6,881 8,213 9,477 11,541 14,736 20,201 17,990 17,911 16,898
Financial liabilites 18,347 22,588 24,517 28,477 39,446 46,447 46,861 49,301 51,231 TOTAL LIABILITES AND EQUITY 74,869 84,107 88,547 94,207 108,946 113,982 117,688 122,802 130,415
GJ
ENSIDIGE
–
INITIATION OF
COVERAGE
Segmental estimates
ESTIMATES
Source: Gjensidige, Fondsfinans research
NOKm 2010 2011 2012 2013 2014 2015E 2016E 2017E 4Q14 1Q15E 2Q15E 3Q15E 4Q15E
Private Norw ay 662 1,186 1,601 1,305 1,624 1,317 1,310 1,261 449 159 361 390 406
Commercial Norw ay 369 394 896 993 1,140 1,041 974 845 265 121 304 354 262
Other Nordic -70 76 466 342 529 386 561 570 166 63 96 140 87
Baltic 18 3 19 36 1 -49 -67 -48 -3 -8 4 -33 -12
Corporate centre -181 -238 -374 -657 -432 -384 -421 -433 -69 -108 -106 -66 -105
Underw riting result general insurance 797 1,421 2,608 2,020 2,862 2,312 2,357 2,194 807 227 660 786 638
Pension and savings -24 15 18 50 43 98 154 217 -16 26 27 21 23
Online retail banking 33 67 113 191 254 282 281 290 49 80 79 73 51
Investments 2,705 2,415 3,005 2,538 2,427 2,385 2,340 2,388 367 693 561 569 562
Amortisation and impairment -243 -11 -16 -162 -170 -156 -156 -156 -39 -39 -39 -39 -39
Other items -36 -11 -95 (63) -17 -36 -36 -36 -9 -9 -9 -9 -9
Pre tax profit 3,259 3,895 5,633 4,574 5,400 4,885 4,940 4,898 1,159 978 1,280 1,400 1,226
Tax expense -304 -900 -1,353 (903) -1,210 -1,095 -1,107 -1,098 -195 -219 -287 -314 -275
Tax % 9 % 23 % 24 % 20 % 22 % 22 % 22 % 22 % 17 % 22 % 22 % 22 % 22 %
Net profit 2,955 2,996 4,280 3,671 4,190 3,790 3,833 3,800 964 759 993 1,087 951
Catastrophes, including natural disasters and terrorist-related events, may
cause Gjensidige to incur substantial losses. The risk is reduced through
re-insurance and the Natural Perils Pool in Norway
Gjensidige derives a significant portion of its income from financial assets.
Fluctuations in the fixed income, equity and the property markets may have
significant adverse effect on results and financial position
The EU has introduced a new regime governing solvency margins and
provisions for insurance companies, the effect of which is still uncertain. The
main political risk factor currently is, however, introduction of higher national
requirements than EU’s minimum
GJ
ENSIDIGE
–
INITIATION OF
COVERAGE
RISK ASSESSMENT
Share data
GJ
ENSIDIGE
–
INITIATION OF
COVERAGE
Source: Bloomberg, Oslo Børs VPS, Fondsfinans research
Shareholders
The Gjensidige Foundation is a protection against unfriendly takeovers
Its share of ordinary dividends is distributed to policyholders in Gjensidige (15% of
premiums in 2014)
Share information
Name
Shares (mill.)
%
Gjensidigestiftelsen
311m
62.2 %
Folketrygdfondet
24m
4.8 %
Deutche Bank
20m
3.9 %
BlackRock
7m
1.3 %
Danske Bank
6m
1.2 %
Thornburg Investment Mgt
5m
1.0 %
State street Corp.
5m
1.0 %
Safe Investment Company
5m
0.9 %
DNB
4m
0.8 %
UBS
4m
0.7 %
Other
111m
22.2 %
Total 500m
100.0
%
Share data
Sector
Financials
Bloomberg
GJF NO
Risk rating
Low
Outstanding shares mill
500
Market cap
65,650
Free float
38 %
Average volume
800
High/low 52w
137/109
Weight OSEBX
2.7 %
Rel. Perf 3/6/12
3/3/6
Abs. Perf. 3/6/12
5/16/18
Disclaimer
Our research and general presentations, also available at our website
www.fondsfinans.no, are provided for information purposes only. They should not be used or considered as an offer to sell or a solicitation of an offer to buy any financial instruments. Any opinion expressed are subject to change without prior notice. Our research and presentations are based on information from various sources believed to be reliable. Although all reasonable care has been taken to ensure that the information herein is not misleading Fondsfinans AS makes no representation or warranty expressed or implied as to its accuracy or completeness.
Neither Fondsfinans AS, its partners and employees, nor any other person connected with our research and presentations, accept any liability whatsoever for any direct or consequential loss of any kind arising out of the use or reliance on the information given. They do not take into account the specific investment objectives and financial situation of any recipient. Investors seeking to buy or sell any financial instruments discussed or recommended in our research or in separate presentations, should seek independent financial advice relating thereto. Our research and materials from separate presentations may not be distributed, quoted from or reproduced for any purpose without written approval by Fondsfinans AS.
Disclosure of interests
Fondsfinans AS is constantly seeking investment-banking mandates, and may at any time perform investment banking or other services or solicit investment banking or other mandates from companies covered in our analysis and presentations. Fondsfinans AS may from time to time as part of its investment services hold positions in securities covered in our research and presentations. In order to avoid any conflict of interests Fondsfinans AS and its employees will always follow very strictly all internal regulations , recommendations from the Norwegian securities dealers association and relevant legislation and regulations from the supervisory official authorities. Internal holdings will be specified as part of shareholder information.
Distribution in the United States
Research reports are prepared by Fondsfinans AS for information purposes only. Fondsfinans AS and its employees are not subject to the rules of the Financial Industry Regulatory Authority (FINRA) governing research analyst conflicts. The research reports are intended for distribution in the United States solely to “major U.S. institutional investors” as defined in rule 15a-6 under the United States securities exchange act of 1934, as amended and may not be furnished to any other person in the United States. Each major U.S. institutional investor that receives a copy of a Fondsfinans AS research report by its acceptance thereof represents and agrees that it shall not distribute or provide copies to any other person. Reports are prepared by Fondsfinans AS and distributed to major U.S. institutional investors under rule 15a-6(a)(2). These research reports are prepared by Fondsfinans AS and distributed in the United States by Fondsfinans Inc. Under rule 15a-6(a)(2). any U.S. Person receiving these reports that desires to effect transactions in any securities discussed within the report should call or write Fondsfinans Inc., a member of FINRA.
Recommendation distribution as of 17.02.15:
Recommendation No Percent Recommendation No Percent
Buy 31 67 % Buy 2 6 %
Neutral 14 30 % Neutral 1 7 %
Sell 1 2 % Sell 0 0 %
Total 46 100 % Total 3
Companies in each recommendation category that have been investment banking clients over the past 12 months:
Our intention is to issue preview and update research on a quarterly basis.
Our investment recommendation is elaborated in accordance with “The Norwegian Securities Dealers Associations” standards.
This report has not been sent to the company for correction of any factual errors.
Fondsfinans is organized with Chinese walls between the Corporate Department and the Research/Broking Department. In addition, Fondsfinans has internal instructions and guidelines for handling sensitive information.
The analyst receives compensation that is impacted by overall firm profitability, including investment banking activities.
Fondsfinans is under supervision of The Financial Supervisory Authority of Norway. This report is an initiation of coverage with a SELL-recommendation.
Ownership per 10.02.15 in Gjensidige ASA:
Analyst (including his/her closely related persons or companies): 0, corresponding to 0% of the company share capital
Employees (including their respective closely related persons or companies): 0, corresponding to 0% of the company share capital
Group Fondsfinans (including the holdings of its Chairman, his spouse and their closely related companies, Erik Must AS and its 100% controlled subsidiaries):.
0, corresponding to 0% of the company share capital
Fondsfinans may hold shares in Gjensidige ASA as a result of daily trading/market making. Information on such holdings is not given when of non-significant value.
Fondsfinans does not act as market maker in Gjensidige ASA. Fondsfinans has not acted as corporate adviser, lead manager in IPO etc. during the past 12 months.
This report was issued and distributed 23.02.15. Definitions of ratings
Buy Low risk: with a potential of min 5%. Medium risk: with a potential of min 10%. High risk: with a potential of min 20%.
Neutral Low risk: -5% to +5%. Medium risk: -10% to +10%. High risk: -20% to +20%.
Sell Low risk: min 5%. Medium risk: min 10%. High risk: min 20%.
Risk ratings are based on price volatility, fundamental criteria and perceived risk. Ratings are: Low (L), Medium (M) and High (H).
Target: Our valuation as of today.
