Organic Growth And Tech Upgrades Will Improve Future Efficiency

Key Takeaways

• Allianz's focus on customer retention, cross-selling, and new technologies targets significant revenue and efficiency improvements through organic growth and productivity enhancements.
  
• Growth in Life and Health and Asset Management segments, strong cash generation, and capital management aim to enhance shareholder returns and earnings.
  
• Customer churn, pricing pressures, and intense competition could impact revenue growth and profitability across Allianz's insurance and asset management sectors.

Catalysts

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

• Allianz is focusing on organic growth by improving customer retention, cross-selling, and acquiring new customers, which is expected to deliver a volume growth ambition twice what was historically achieved. This will potentially boost revenues significantly.
  
• The company plans to enhance productivity by leveraging new technologies and transitioning from old legacy systems. This is expected to improve efficiency and increase net margins.
  
• Allianz anticipates further growth in its Life and Health segment with a strong focus on optimizing product mix and capital consumption. This strategy aims to achieve a €6 billion operating profit by 2027, improving earnings from this segment.
  
• Allianz Asset Management continues to focus on strong third-party AUM margins and expects an average of about 8% growth in third-party AUM over the next 3-year cycle, potentially boosting revenues and earnings.
  
• Strong cash generation and disciplined capital management, including share buybacks and maintaining a high dividend payout ratio, are expected to enhance shareholder returns and EPS growth.

Allianz Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Allianz's revenue will grow by 22.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 9.1% today to 6.1% in 3 years time.
• Analysts expect earnings to reach €12.1 billion (and earnings per share of €32.28) by about May 2028, up from €9.8 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 12.2x on those 2028 earnings, down from 14.3x today. This future PE is lower than the current PE for the GB Insurance industry at 14.3x.
• Analysts expect the number of shares outstanding to decline by 1.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.55%, as per the Simply Wall St company report.

Allianz Future Earnings Per Share Growth

Risks

• Allianz is facing customer churn issues, with almost as many clients lost as gained each year, potentially impacting revenue growth.
  
• Pricing pressures and intense competition in retail insurance markets might affect future revenue and net margins.
  
• Uncertainty in future performance fees at PIMCO, which can be lumpy and unpredictable, could impact asset management earnings.
  
• Regulatory and structural changes in life insurance, like the exit from the Unicredit JV, might affect future revenue and operating profit in the Life segment.
  
• Although significant growth in new business is reported, sustaining this high growth rate, especially in the Life and Health segment, could be challenging due to product demand fluctuations, impacting future revenues and profitability.

Valuation

• The analysts have a consensus price target of €349.875 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 €407.0, and the most bearish reporting a price target of just €311.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €199.3 billion, earnings will come to €12.1 billion, and it would be trading on a PE ratio of 12.2x, assuming you use a discount rate of 4.6%.
• Given the current share price of €364.1, the analyst price target of €349.88 is 4.1% lower. 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.