Generali’s Tactical Moves In Life And P&C Fueling Growth Amidst Challenges

Key Takeaways

• Strong growth in Life insurance and technical excellence in P&C segments drive high-margin revenue and underwriting profitability.
  
• Restructuring costs in real estate might impact earnings, but effective management could streamline costs and support net margins.
  
• Declining new business margins, natural catastrophe impacts, restructuring costs, and tax reforms could negatively affect future earnings and financial stability.

Catalysts

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

• Generali's growth in the Life insurance segment is driven by a 9% increase in new business volume and a strong performance in the protection line, which is anticipated to continue contributing to high-margin revenue growth.
  
• The Property & Casualty (P&C) segment is experiencing improving profitability due to rising premiums and a positive jaws effect from stable claims inflation, suggesting potential widening of net margins.
  
• Lower lapse rates, especially in Italy and France, are expected to improve net collections and support revenue stability and growth in the Life insurance division.
  
• An ongoing focus on pricing and technical excellence in P&C, coupled with tariff increases, indicates a strategic bolster to underwriting profitability, which could enhance earnings.
  
• Anticipated restructuring costs and potential impairments in real estate could temporarily impact earnings, but effective management and future reversal of some incentives could streamline costs, potentially supporting net margins.

Assicurazioni Generali Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Assicurazioni Generali's revenue will grow by 20.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.9% today to 4.4% in 3 years time.
• Analysts expect earnings to reach €4.6 billion (and earnings per share of €3.08) by about November 2027, up from €3.5 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €4.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.4x on those 2027 earnings, down from 11.8x today. This future PE is lower than the current PE for the GB Insurance industry at 13.7x.
• Analysts expect the number of shares outstanding to decline by 0.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.9%, as per the Simply Wall St company report.

Assicurazioni Generali Future Earnings Per Share Growth

Risks

• A lower new business margin is expected in the fourth quarter compared to the third quarter, impacted by a decline in interest rates and product mix, which may affect future revenues and margins.
  
• Natural catastrophes have had a significant impact, exceeding the budget by 100 basis points, and could affect future earnings if this trend continues.
  
• There are anticipated restructuring costs and potential impairments on real estate assets, which could negatively impact net earnings in the short term.
  
• A potential new corporate tax reform in France may result in a negative impact of approximately €40 million on net earnings if implemented.
  
• The step-up in the Generali China P&C joint venture is expected to impact the Solvency II ratio negatively by 1 percentage point, potentially affecting financial leverage and cost of capital.

Valuation

• The analysts have a consensus price target of €26.4 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 €31.1, and the most bearish reporting a price target of just €21.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €105.5 billion, earnings will come to €4.6 billion, and it would be trading on a PE ratio of 11.4x, assuming you use a discount rate of 9.9%.
  
• Given the current share price of €27.01, the analyst's price target of €26.4 is 2.3% 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.