Expansion In Insurance Distribution Network Will Extend Annuity And Life Insurance Reach

Key Takeaways

• Transforming Transamerica and expanding the U.S. insurance distribution network could boost sales and enhance profitability in annuities and life insurance.
  
• Strengthened performance in the U.K. and strong U.S. retirement plans growth signal potential revenue diversification and earnings stability.
  
• Reduced life sales, client withdrawals, pricing actions, and solvency pressures may hinder future growth, earnings, and capital management for Aegon across multiple regions.

Catalysts

Provides insurance, pensions, retirement, and asset management services in the United States, the Netherlands, the United Kingdom, and internationally.

• Aegon is on track to transform Transamerica into a leading middle-market life insurance and retirement company in the U.S., with expansion in their insurance distribution network, which is likely to positively impact revenue through increased sales in annuities and life insurance products.
  
• Strengthened commercial momentum in the U.K.’s Workplace platform, with record net deposits during 2024, suggests continued growth in assets under administration and improved revenues going forward.
  
• Ongoing efforts to reduce capital employed in Financial Assets, such as completing the purchase of institutionally owned Universal Life policies and regulatory approvals for premium rate increases in Long-Term Care, indicate potential for improved net margins and earnings stability.
  
• Solid business growth and strong pipeline of written sales in the Retirement Plans segment in the U.S. point to increased gross deposits and diversification of revenue streams, enhancing overall profitability.
  
• Aegon Asset Management demonstrated strong performance and net inflows, driven by alternative fixed income funds and strategic partnerships, supporting higher assets under management and potentially boosting earnings.

Aegon Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aegon's revenue will decrease by 8.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.8% today to 14.0% in 3 years time.
• Analysts expect earnings to reach €1.4 billion (and earnings per share of €0.94) by about April 2028, up from €611.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €1.7 billion in earnings, and the most bearish expecting €979 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.9x on those 2028 earnings, down from 14.6x today. This future PE is lower than the current PE for the US Insurance industry at 11.1x.
• Analysts expect the number of shares outstanding to decline by 4.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.34%, as per the Simply Wall St company report.

Aegon Future Earnings Per Share Growth

Risks

• New life sales in Transamerica decreased by 3% due to various factors such as attrition of senior producing life licensed agents and an increased sales mix towards annuities, which could impact future revenue growth.
  
• In the U.K., net outflows from the Adviser platform suggest ongoing customer withdrawals and industry consolidation, potentially impacting net margins and revenue.
  
• The International business experienced a 15% decrease in new life sales, driven mainly by pricing actions in China due to lower interest rates, which could reduce earnings and growth potential in that region.
  
• The persistent decrease in operating results, such as in the UK's 2% decrease, despite favorable markets, highlights a vulnerability in earnings due to external factors like higher hedging costs and lower interest income.
  
• Aegon’s solvency ratios faced pressure due to deferred tax asset constraints and regulatory factors in variable annuities, posing risks to capital management and potentially affecting future operational investments.

Valuation

• The analysts have a consensus price target of €6.782 for Aegon 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 €7.9, and the most bearish reporting a price target of just €5.4.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €9.8 billion, earnings will come to €1.4 billion, and it would be trading on a PE ratio of 7.9x, assuming you use a discount rate of 5.3%.
• Given the current share price of €5.6, the analyst price target of €6.78 is 17.5% 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.