Effective Pricing In Property & Casualty And Positive Net Inflows Will Support Future Profitability

Key Takeaways

• Allianz's growth driven by P&C volume, Life and Health, and asset management indicates strong future revenue potential.
  
• Effective pricing actions and improved operating profit suggest enhanced net margins and profitability prospects.
  
• Allianz faces potential long-term risks to profitability due to natural catastrophes, challenges in asset management, restructuring efforts, and rate softening in insurance lines.

Catalysts

Provides property-casualty insurance, life/health insurance, and asset management products and services worldwide.

• Allianz's strong growth momentum, with a reported 11% increase in overall growth, driven by P&C volume and price, Life and Health, and asset management net flows, indicates potential for future revenue expansion.
  
• The improved operating profit, with a reported €11.8 billion at 9M, sets expectations for year-end operating profit in the upper half of the outlook range, indicating potential for increased earnings.
  
• The company's effective pricing actions and productivity gains in P&C, along with an improvement in the combined ratio to 93.5%, suggest potential for enhanced net margins.
  
• The record value of new business in Life and Health and sustained attractive new business margins provide indications of future profitability and revenue growth.
  
• Allianz's asset management, with assets under management up 7% and consistent positive net inflows, supports expectations for increased revenue and profitability in future periods.

Allianz Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Allianz's revenue will grow by 23.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 9.7% today to 6.3% in 3 years time.
• Analysts expect earnings to reach €11.5 billion (and earnings per share of €30.65) by about December 2027, up from €9.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.7x on those 2027 earnings, down from 12.3x today. This future PE is lower than the current PE for the GB Insurance industry at 13.1x.
• Analysts expect the number of shares outstanding to decline by 0.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.26%, as per the Simply Wall St company report.

Allianz Future Earnings Per Share Growth

Risks

• Allianz faced an elevated level of natural catastrophes, weather-related events, and large losses, implying potential long-term risks to profitability and combined ratios in the Property & Casualty (P&C) segment.
  
• The asset management division experienced setbacks in net flows, particularly at PIMCO, which could indicate pressure on future revenue and profitability if these trends continue.
  
• The divestment of certain businesses and restructuring efforts, such as in the AGCS in the U.S., might impact overall revenue growth and introduce transitional costs.
  
• Rate softening in commercial and specialty insurance lines may reduce pricing power and margins, posing a threat to maintaining current profit levels.
  
• Fluctuations in the Life business's Contractual Service Margin (CSM) due to lapse assumptions and economic variances could affect future earnings stability and predictability.

Valuation

• The analysts have a consensus price target of €317.32 for Allianz based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €376.0, and the most bearish reporting a price target of just €271.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €183.2 billion, earnings will come to €11.5 billion, and it would be trading on a PE ratio of 11.7x, assuming you use a discount rate of 4.3%.
• Given the current share price of €301.6, the analyst's price target of €317.32 is 5.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.