All the fault of sovereign risk: this is why today the analysts of Barclays Capital would not focus on Generali and even less on Fondiaria Sai or Unipol. But rather on Prudential, Swiss Re, Vig, Legal & General, Catlin, Resolution. The perspective, however, is that of an investment in a security that pays off on the Stock Exchange within 12 months. Thus in the report published yesterday on European insurance, Generali is judged to be a solid company with an attractive operating business but without much room for upside compared to current prices (+14% with a target price of 14,20), due to pressure on bonds Italians who account for most of the investments. On the other hand, Barclays admits that in the last six months Generali have outperformed their competitors (Axa, Allianz and Aviva) by an average of 10%, achieving the best performance in the sector. But to seek the rally, a Prudential is better for the broker (the target price incorporates an upside of +52%) whose strengths are growing dividends and a good Asian network. Or Swiss Re: +45% potential stock run thanks, according to Barclays writes, to strong solid profit growth, a solid balance sheet and capital and scope for improvements from network restructuring. In detail, the broker went in search of companies that present at least one of these characteristics: a strong capital base that does not require increases or protects against unexpected events; differentiated and/or uncorrelated profits; exposure to long-term structural growth and ability to distribute dividends. And in one way or another it puts Italian companies out of the game, which in some cases, like Generali, have undoubted strengths. Here's what the bank thinks of individual companies.
FONDIARIA SAI, HIGH VALUE BUT UNQUANTIFIABLE RISK
“We remain positive on the recovery prospects of the motor insurance sector in Italy and Fondiaria (equal weight and target price at 0,97) could represent the best way to gain exposure to this trend – says Barclays – but the results at the moment are too many binaries". Simply put, it's a bet where you either win a lot or lose a lot. No half measures. In fact, if the valuation itself is attractive, it is actually the risks that cannot be calculated. Too many uncertainties. On the capital front, for example, the release of goodwill and also the possible creation of the new vehicle for strategic holdings with the sale of 40%, do not clear analysts' concerns about the solidity of the group's solvency ratio in the current market context.”The company – says Barclays – is located between a stone and hard ground: with the need for additional capital but without being able to ask the market or ask for support from the majority shareholder”.
GENERALI, SOLID AND WITH AN ATTRACTIVE NETWORK BUT THE MARKET SITUATION CONCERNS ITALIAN BONDS
Generali has recently been the best multiline insurer on the Stock Exchange and has outperformed its competitors (Axa, Allianz and Aviva) by an average of 10%, despite being the most exposed to sovereign debt tensions. "We are convinced that Generali enjoys a very strong operating momentum - Barclays analysts point out - but the current market volatility and the low values of Italian government bonds are undoubtedly putting pressure on the balance sheet and solvency ratios". The group, which is "a very solid company with one of the most attractive European networks", however trades at values that are already considered fair (1,5 times the p/bv EX Goodwill on 2012 estimates compared to 1,1 in the sector; equal weight and target price at 14,20). On the other hand, Generali offers analysts an attractive mix of immature life markets, emerging markets and sectors undergoing recovery (such as the auto sector in Italy) while practically no exposure to already mature markets such as the USA and Great Britain . A geographical and sub-sector exposure which in the next 12-18 months may also reserve surprises in terms of profits. But troubles over Italian debt, which represents the bulk of a portfolio heavily oriented towards fixed income instruments and government bonds, put pressure on book value. For analysts, therefore, capital and solvency margin will remain a theme for the group in the future and it is not excluded that in 2011 there will be a cut in dividends.
