Capital Optimization And Strong Cash Flows Will Support Future Shareholder Value

Key Takeaways

• Strong operating results and strategic execution indicate potential future earnings growth and robust revenue across Life and Property & Casualty segments.
  
• Significant growth in Asset & Wealth Management, along with share buybacks, may bolster future revenue and enhance EPS growth.
  
• Geopolitical and economic challenges in key regions pose risks to profitability and investment returns, potentially impacting expansion and shareholder returns.

Catalysts

Engages in the provision of various insurance solutions under the Generali brand worldwide.

• The Generali Group highlights its strong operating results and strategic plan execution, with a notable increase in its operating result to €7.3 billion, which could enhance future earnings growth.
  
• A significant focus on protection and unit-linked lines has driven net flows close to €10 billion, indicating robust revenue growth potential for the Life business segment.
  
• Property & Casualty saw a 7.7% increase in gross written premiums, supported by effective tariff strengthening and improved loss ratios, suggesting an upward trajectory for net margins.
  
• Asset & Wealth Management has grown significantly, with a 32% increase in assets under management to €863 billion and a 23% rise in operating results, potentially boosting future revenue streams.
  
• A proposed €500 million share buyback and increased dividend are supported by strong cash flow generation and capital optimization, likely enhancing Earnings Per Share (EPS) growth.

Assicurazioni Generali Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Assicurazioni Generali's revenue will grow by 26.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 6.8% today to 4.4% in 3 years time.
• Analysts expect earnings to reach €4.8 billion (and earnings per share of €3.22) by about March 2028, up from €3.8 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 12.4x on those 2028 earnings, down from 13.3x today. This future PE is greater than the current PE for the GB Insurance industry at 12.1x.
• Analysts expect the number of shares outstanding to decline by 0.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.11%, as per the Simply Wall St company report.

Assicurazioni Generali Future Earnings Per Share Growth

Risks

• The impact of natural catastrophes, which was quantified at €1.2 billion, could adversely affect future profitability in the Property & Casualty segment if such events persist, pressuring net margins.
  
• Challenges in markets like Spain and Portugal, where persistent inflation has been noted, could impact the profitability of motor insurance lines, thereby affecting overall earnings.
  
• The concentration of investment in Italian government bonds (BTPs), as noted by an increased purchase plan, could present a risk if the economic or political situation in Italy changes, impacting investment revenues.
  
• The lower-than-expected remittance from regions like Switzerland until 2026 may affect cash flow expectations and hinder optimal capital deployment, potentially impacting shareholder returns.
  
• Execution risk in expanding segments such as non-motor insurance across diverse regions, particularly in high-growth markets with varying operational challenges, could impact revenue growth expectations and necessitate further investment.

Valuation

• The analysts have a consensus price target of €29.748 for Assicurazioni Generali 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 €34.8, and the most bearish reporting a price target of just €24.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €110.3 billion, earnings will come to €4.8 billion, and it would be trading on a PE ratio of 12.4x, assuming you use a discount rate of 10.1%.
  
• Given the current share price of €32.75, the analyst price target of €29.75 is 10.1% 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.