Price Discipline In Retail P&C Will Increase Market Share In Germany And UK

Key Takeaways

• AXA anticipates growth in midmarket commercial insurance, enhancing revenues and margins in the U.S., Italy, and the U.K. and Ireland.
  
• Strategic AI investments and cost moderation are expected to boost earnings and shareholder returns through efficient operations and improved margins.
  
• AXA faces growth and revenue risks from high lapses, political uncertainty, interest rate impacts, underwriting challenges, and rising Nat Cat events.

Catalysts

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

• AXA is expecting midmarket commercial insurance to drive significant growth, particularly in the U.S., Italy, and the U.K. and Ireland. This is likely to positively impact revenues and margins given the advantageous pricing dynamics associated with midmarket insurance.
  
• AXA has a strong focus on expanding and improving its pension and savings offerings, with particular attention to the French market's public debate on retirement. This is anticipated to enhance revenues in the Life segment and potentially improve earnings through increased volume and customer base retention.
  
• The turnaround of the U.K. health business and ongoing margin improvements in the Health sector are expected to drive future earnings growth. This improvement in the short-term combined ratio should support higher profitability.
  
• AXA's strategic investments and focus on price discipline in the retail P&C environment, especially in Germany and the U.K., are creating a platform for sustained margin improvement and market share growth, positively impacting net margins and earnings.
  
• The combination of strategic AI investments, focused capital management, and the benefits of cost moderation in reinsurance is expected to support underlying earnings growth, contributing to both margin enhancement and increased shareholder returns through efficient operations.

AXA Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AXA's revenue will grow by 14.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 9.4% today to 7.3% in 3 years time.
• Analysts expect earnings to reach €9.0 billion (and earnings per share of €4.36) by about March 2028, up from €7.7 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 11.5x on those 2028 earnings, up from 10.5x today. This future PE is lower than the current PE for the GB Insurance industry at 581.6x.
• Analysts expect the number of shares outstanding to decline by 0.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.83%, as per the Simply Wall St company report.

AXA Future Earnings Per Share Growth

Risks

• AXA has faced challenges with past high lapses in their Life & Health business, which could affect future revenue and strains on projected growth in CSM as new business might take time to reflect in earnings.
  
• The political uncertainty in Europe and the U.S., though currently showing no business impact, poses risks that could disrupt operations or strategic initiatives, potentially affecting revenue stability.
  
• While inflation is receding, differing interest rates in the U.S., Europe, and Japan may impact profitability, especially where AXA's expansion is focused, affecting their net margins.
  
• Dependency on robust technical profitability in their major retail and P&C segments indicates a risk that adverse underwriting results or underpricing could hurt earnings over time.
  
• Exposure to increased Nat Cat severity and frequency is acknowledged, with a disciplined approach to management, yet persistent increases in such events could strain profitability and yearly earnings growth targets.

Valuation

• The analysts have a consensus price target of €41.686 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 €47.8, and the most bearish reporting a price target of just €37.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €123.4 billion, earnings will come to €9.0 billion, and it would be trading on a PE ratio of 11.5x, assuming you use a discount rate of 5.8%.
  
• Given the current share price of €38.03, the analyst price target of €41.69 is 8.8% 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.