Generali again above 20 euros? Leo has not seen this level since October 2008 when, thanks to the subprime crisis, the stock collapsed around 15 euros with an absolute minimum below 10. To find the Generali below 20 euros you have to go back to the July period 2002-August 2004. A debacle in line with the fate of many other stocks overwhelmed by the storm of the crisis but particularly "suffering" for a stock that has always been considered a refuge for drawers (under 20 euros Generali is a buying opportunity, it was the leitmotif of glorious times). From the current rates, 15,48 euros, it is a big leap, over 35%. However, now the conditions for starting the redemption seem to have materialized. With the sale of BSI, completed on 14 July, the CEO Mario Greco, who took over from Giovanni Perissinotto in June 2012, met the solvency targets of Solvency in advance and can now concentrate on the dividend, which should favor a rerating of the stock . “Rebuilding the solidity of Generali is our primary concern and activity. We count on being far ahead in the capital development plan and on reaching these objectives ahead of time. Once the objectives have been achieved, we plan to review the dividends in an improvement sense for the shareholders”, Greco said in May on the occasion of the first quarter data.
"We expect the focus of November's investor day to shift from financial statements to the prospects for earnings and dividend growth", wrote Marcus P. Rivaldi of Morgan Stanley just over a month ago, who on the occasion improved his rating to equalweight from underweight and raised the target price to 17,25 euro from 16,01. Then there is the issue of restructuring potential. “Why do we say overweight?” Claudia Gaspari of Barclays observed the day after the quarterly results on 16 May, replying: “It is a concrete story of a turnaround with a 10% CAGR (average annual growth ed) of profits, increasing dividends and a strengthening balance sheet. While it may take some time for the full benefits to materialise, we believe the operational risk is low." The English house of business sees the title at 19,2 euros, estimating an upside of up to 21,10 euros in the best scenario. Conversely, in the worst case, the analyst does not expect a drop below 15 euros.
TITLE “FREE” FROM TECHNICAL PRESSURE
On the other hand, the share now seems to have absorbed the technical pressure due to the sale of the package in the hands of the Italian Strategic Fund (FSI, 80% owned by Cassa depositi e prestiti and the remainder by Bank of Italy), a stake equal to 4,48% previously held by Bankitalia and on which the FSI had undertaken to carry out an "orderly sale" to third parties by the end of 2015 at market conditions. In 2012 Bankitalia had in fact transferred its stake in Generali to the Fund, becoming a 20% shareholder between ordinary and preferred shares. At the same time, the FSI had undertaken to repay any capital gains calculated as the difference between the value of the share at the end of 2012 and the transfer value to Bank of Italy, in the form of dividends from preference shares.
The sale was completed in July 2014. On 8 July 2014, the accelerated placement was closed, followed by Merrill Lynch, of a package of Generali shares equal to 1,913% of the capital at a price of 15,7 euros per share through a 'that is, with a very limited discount on the price of the share compared to what could be hypothesized for the spot sale of a package of this kind placed in the evening and above all to non-European, above all American, investors. This certainly depended on the strong interest that at the beginning of July American investors still showed for investments in Italy (a trend which continues, albeit in a less marked way) but also on the fact that it was now the last tranche for sale by the FSI (which means that whoever bought it knew that, at least from the Fund, no more shares would have been poured onto the market that would have put pressure on the share prices). The rest of the capital of the Lion in the hands of the FSI, 2,569% of the capital in fact, it had already been the subject of a forward sale (forward contracts implemented through a large international bank) which took place in the previous months and was now substantially completed. A sale that allowed the Fund to protect the value of the share during the disposal of the huge package (when a large quantity of shares is placed on the market, downward pressure is created on the quotations of the share) avoiding that the value suffered the repercussion of the placing a substantial stock of securities on the market, and at the same time retaining the voting rights of the shares until the end of the operation. Although the CDP can always recall the voting rights attached to these securities until the expiry of the operation, in reality by now everyone on the market now considers the operation concluded as the FSI has committed to sell as established by the agreements with Bank of Italy. An operation which in fact did not create pressure on the stock because the short sales of the stock were made (by the bank which acted as counterparty in the forward contract stipulated by the FSI) through very small packages sold over an extended period of time.
Overall, moreover, all the shares put up for sale with a 2,5% interest, around 670 million, all together correspond to only a few days of trading since the average daily trading is around 150 million as Generali is a very liquid. However, the awareness that the FSI had to proceed to sell the package by 2015, together with the expectations of divestment of other key shareholders of the Leone (such as Mediobanca and Effeti) had led other market operators to open short positions on the stock, putting further pressure down on the stock. Thus the very announcement of the completion of the forward operation (which was communicated at the end as it was a private contract) together with the completion of the last package through accelerated placement has led several operators in recent weeks to close many of the speculative positions they had as underlying the shares of Generali, easing the pressure on prices. According to Bloomberg, short positions on Generali fell to 1,6% of outstanding shares (-56,6%). In this situation, the focus can thus return to the fundamentals rather than to "short" speculation.
TOMORROW THE ACCOUNTS CATALYST
The next catalyst on the stock will arrive with tomorrow's accounts. Il Leone will release the results as at 30 June 2014. The data for the first quarter had received positive judgments from analysts. “The results confirmed – Barclays wrote in a note following the accounts – that management has implemented the right actions and that operating performance is improving in line with the restructuring targets, and potentially even further ahead”.
And tomorrow Greco, as mentioned, will present the Solvency I target achieved in advance thanks to the sale of Bsi to Banco Btg Pactual for a total value of 1,5 billion Swiss francs (1,2 billion in cash and 300 million in equity instruments – units of BTG listed on the San Paolo Stock Exchange BOVESPA) “The sale of BSI represents a key step in the process of relaunching Generali – underlined Greco – Through this operation we exceed the Solvency 1 target, restoring the solidity of the capital of Generali more than a year ahead of our 2015 plan. With BSI, the divestment process aimed at strengthening the Group's capital base is completed, and we can now look ahead by focusing on the core insurance business without what has been a problem for a long time time".
The sale will allow an estimated improvement in the Solvency 1 index of around 9 percentage points which, as a pro-forma basis on the first quarter of 2014, will be higher than the 2015 Solvency 1 target of 160%. The seal of the rating agencies has also arrived. "The BSI operation is an important step for Generali and will favor the lightening of the operations started by the group which intends to focus on its core activities, i.e. insurance", wrote Moody's in a report dated July 17, which judges the financial strength of the stable Baa1 group. A few days ago the rating agency Fitch confirmed the rating on the Ifs (Insurer Financial Strength) of Assicurazioni Generali and its core subsidiaries at A- and at BBB+ the rating on the long-term issuer default rating at BBB+. For both ratings the outlook is stable.
On the international front, a few days ago the confirmation that the Lion will rise by January 2015 to 100% of GPH, the operating holding company in the countries of Central and Eastern Europe, following the exercise of the put option on the residual stake of the 24% by PPF, according to the provisions of the agreements signed on 8 January 2013 for the price of approximately 1.235 million already communicated. The profound reorganization of the business in Italy then continued with the creation of Generali Italia. The integration process between the subsidiaries started in 2013 will be completed at the end of 2015 and, when fully operational, Generali Italia will have a single strong brand with 3.000 points of sale throughout the country.
