Calculated Market Expansion And Innovative Products Drive Revenue Growth And Profitability

Key Takeaways

• AXA's disciplined pricing and focus on operational excellence aim to enhance profitability in international markets.
  
• Strategic investments in protection-focused products and growth initiatives in key regions should drive significant future revenue and earnings growth.
  
• Vulnerability to market volatility and unfavorable pricing trends could pressure net margins and affect long-term profitability and revenue growth for AXA.

Catalysts

Through its subsidiaries, provides insurance, asset management, and banking services worldwide.

• AXA's planned pricing and improved customer retention across business lines, particularly in P&C and Life & Health, is expected to continue revenue growth, driving future earnings higher.
  
• The company's focus on operational excellence and disciplined pricing strategies, especially in international markets like the UK and Germany, could help improve net margins by managing costs and enhancing profitability.
  
• AXA's strategic investments in capital-light and protection-focused products, notably in Japan and Italy, are anticipated to boost future revenue streams and earnings due to lower capital requirements and higher demand.
  
• The company's Solvency II ratio stability and positive rating outlook from Moody's suggest solid financial health, potentially leading to more favorable financing conditions and reduced capital costs, aiding earnings growth.
  
• AXA's growth initiatives in Employee Benefits and Health, particularly outside Europe in markets like Mexico and Turkey, present opportunities for significant revenue growth, contributing to a higher earnings trajectory.

AXA Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AXA's revenue will grow by 9.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 7.9% today to 7.2% in 3 years time.
• Analysts expect earnings to reach €8.6 billion (and earnings per share of €4.05) by about November 2027, up from €7.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €6.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.9x on those 2027 earnings, up from 10.0x today. This future PE is lower than the current PE for the GB Insurance industry at 12.9x.
• Analysts expect the number of shares outstanding to grow by 0.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.43%, as per the Simply Wall St company report.

AXA Future Earnings Per Share Growth

Risks

• The outlook for the Solvency ratio is down 6 points from unfavorable market effects, which could impact financial stability and future dividends or share buybacks.
  
• The 2024 pricing is expected to be in line with loss trends, indicating concerns about maintaining profit margins rather than expanding them, which could pressure net margins.
  
• Soft pricing in North America Professional lines, especially compared to higher loss trends, poses risks to profitability if cost management doesn’t keep pace, potentially affecting net earnings.
  
• Market effects and government spreads in Europe have negatively impacted the Solvency ratio, signaling vulnerability to market volatility that could affect earnings and capital generation.
  
• The decrease in the new business margin by 50 basis points reflects changes in business mix and financial assumptions, which could lead to lower profitability from new business ventures, affecting long-term revenue growth.

Valuation

• The analysts have a consensus price target of €39.83 for AXA 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 €44.27, and the most bearish reporting a price target of just €35.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €120.0 billion, earnings will come to €8.6 billion, and it would be trading on a PE ratio of 11.9x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of €34.13, the analyst's price target of €39.83 is 14.3% 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.