Services Expansion And Data Platform Will Drive Stronger Future Potential

Catalysts

About COFACE

COFACE provides trade credit insurance and related services that help businesses manage customer credit risk and collections.

What are the underlying business or industry changes driving this perspective?

• Rapid expansion of services such as business information and third party debt collection, which now generate more than €100 million of annualized revenue and are growing around 20% a year, could support a higher share of fee based and services revenue over time.
• Execution of the Power the Core plan, built around data, connectivity and technology, including automation and artificial intelligence driven tools, is creating a differentiated risk platform that can support underwriting quality and potentially help protect earnings and net margins.
• Rising global demand for credit data, scores and portfolio monitoring, combined with COFACE’s data lab and over 1,000 FTEs focused on services, positions the company to deepen its role in clients’ credit decisions and broaden revenue beyond traditional insurance premiums.
• Very high client retention of 94.8%, together with record new production in the past 5 years, suggests that distribution investments and service quality are resonating with customers. This can underpin future premium revenue and support scale benefits in the cost ratio.
• A consistently low net combined ratio of 70%, alongside a net loss ratio of 37.6% supported by stable reserving methods and reserve releases from prior vintages, indicates disciplined risk control that can help sustain return on average tangible equity and support earnings resilience.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more optimistic perspective on COFACE compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming COFACE's revenue will grow by 7.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 11.7% today to 13.0% in 3 years time.
• The bullish analysts expect earnings to reach €294.6 million (and earnings per share of €1.98) by about July 2029, up from €213.5 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €219.7 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 14.4x on those 2029 earnings, up from 11.3x today. This future PE is greater than the current PE for the GB Insurance industry at 12.0x.
• The bullish analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.88%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A prolonged period of weak client activity and slow trade flows in core regions such as Western, Northern and Central Europe, together with the recent slowdown in Med & Africa, Latin America and Asia Pacific, could cap premium volumes and keep overall turnover around current levels, which would weigh on revenue and earnings growth.
• Persistently high insolvency levels across most major economies, combined with higher geopolitical tension in the Gulf and Middle East and the impact of tariffs and deglobalization, could eventually feed through into more severe claims, putting pressure on the currently benign loss ratio and reducing net margins and earnings.
• Inflation that feeds into COFACE’s cost base without a matching uplift in client activity or pricing, as highlighted by the 5% rise in costs and higher cost ratio, could structurally squeeze profitability if wage, technology and data expenses continue to rise faster than premiums, reducing net margins and return on equity.
• The Power the Core investments in data, connectivity, technology and artificial intelligence, which management aims to run close to neutral on the income statement, may require higher or longer spending in a fast changing AI and data market. If revenue from services does not keep pace, this could erode net margins and constrain future earnings.
• Growing reliance on services such as business information and third party debt collection, now above €100 million of annualized revenue and supported by more than 1,000 FTEs, could introduce execution and competitive risks. If global demand for these services or partnership channels underperforms expectations, the company may face slower revenue growth and underutilized cost and capital.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for COFACE is €22.5, which represents up to two standard deviations above the consensus price target of €18.62. This valuation is based on what can be assumed as the expectations of COFACE's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €22.5, and the most bearish reporting a price target of just €17.0.
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be €2.3 billion, earnings will come to €294.6 million, and it would be trading on a PE ratio of 14.4x, assuming you use a discount rate of 7.9%.
• Given the current share price of €16.1, the analyst price target of €22.5 is 28.4% higher.
• 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.