Regulatory And Competitive Pressures Will Erode Future Net Margins In Nordic Insurance Sector

Key Takeaways

• Share buyback plans and increased dividends may boost stock expectations and signal strong cash flow, benefiting earnings stability and growth perception.
  
• Asset management and strategic regional expansion may drive revenue growth, while insurance price increases face margin pressures from regulatory demands.
  
• Storebrand's strong financial performance, strategic focus, and robust capital position suggest potential for sustained revenue growth, increased shareholder returns, and market share expansion.

Catalysts

Provides insurance products and services in Norway, the United States, Japan, and Sweden.

• Storebrand's ambitious plan to conduct a NOK 1.5 billion share buyback in 2025 and its long-term goal of NOK 12 billion by 2030 may elevate stock price expectations, impacting earnings per share due to fewer shares outstanding.
  
• The expectation of continued double-digit growth in the asset management business, aided by recent acquisitions and strong net flows, is anticipated to drive revenue growth and improve profit margins as operating leverage increases.
  
• Anticipated price increases in the insurance segment could enhance net margins, but regulatory and competitive pressures to maintain affordability may lead to potential margin compression over time.
  
• Storebrand's increase in dividends and the execution of its share buyback program could signal strong future cash flow generation, contingent on sustained operational performance and favorable market conditions, impacting investor perceptions of earnings stability and growth.
  
• The company's strategic focus on expanding its occupational pensions and retail market presence, especially in Norway and Sweden, may lead to revenue growth; however, market saturation and intensified competition could limit net margins in the long term.

Storebrand Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Storebrand's revenue will decrease by 18.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.6% today to 41.8% in 3 years time.
• Analysts expect earnings to reach NOK 4.7 billion (and earnings per share of NOK 11.56) by about March 2028, down from NOK 5.5 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 13.2x on those 2028 earnings, up from 9.7x today. This future PE is lower than the current PE for the GB Insurance industry at 13.3x.
• Analysts expect the number of shares outstanding to decline by 2.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.55%, as per the Simply Wall St company report.

Storebrand Future Earnings Per Share Growth

Risks

• Storebrand's strong financial performance in 2024, with a record high result of NOK 5.9 billion and an operating profit of NOK 3.2 billion, driven by double-digit growth and strong cost control, suggests potential for continued growth in revenue and earnings.
  
• The company's approval from the FSA to conduct NOK 1.5 billion of share buybacks for 2025, alongside a 15% increase in dividends, indicates a strong capital position and potential for increased shareholder returns, which could support share price stability.
  
• Storebrand's strategic focus on becoming a leading provider in occupational pensions, a Nordic powerhouse in asset management, and a challenger in retail financial services positions it well for future revenue growth through increased market share.
  
• The company's robust solvency margin of 200% and stable liquidity provide a solid financial foundation, enhancing its ability to pay dividends and execute share buybacks, potentially supporting earnings consistency and investor confidence.
  
• Storebrand's achievement of strong growth in assets under management, reaching NOK 1,469 billion, and its strategic acquisitions, such as the Danish infrastructure business AIP, may enhance revenue streams and improve net margins through economies of scale.

Valuation

• The analysts have a consensus price target of NOK122.125 for Storebrand 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 NOK140.0, and the most bearish reporting a price target of just NOK99.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK11.2 billion, earnings will come to NOK4.7 billion, and it would be trading on a PE ratio of 13.2x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of NOK122.5, the analyst price target of NOK122.12 is 0.3% 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.