GJF: Norwegian Pricing Trends And Execution Will Shape Outlook Amid Pricing Momentum

Key Takeaways

• Strategic pricing and operational efficiency measures in Norway and Denmark are expected to drive revenue growth and boost profitability.
  
• Sustainability and digital transformation initiatives aim to reduce claims costs and enhance efficiency, improving Gjensidige's net margins.
  
• Geopolitical tensions, trade disputes, regulatory scrutiny, and customer churn threaten Gjensidige's financial stability, with potential impacts on revenue, earnings, and profitability.

Catalysts

Provides general insurance and pension products in Norway, Sweden, Denmark, Finland, Latvia, Lithuania, and Estonia.

• Gjensidige's strategic focus on pricing measures, particularly in property and motor insurance in Norway, is expected to enhance revenue growth, as evidenced by average premium increases of 13% for property and over 17% for motor insurance. Additionally, high customer retention despite these price increases is likely to sustain revenue growth.
  
• In Denmark, ongoing targeted measures to enhance profitability, including pricing increases and operational efficiency improvements, hold potential for future earnings growth. Continued efforts in claims handling and cost management are anticipated to impact net margins positively over time.
  
• The acquisition of BuySure is anticipated to broaden Gjensidige's customer base and provide additional cross-selling opportunities, thus contributing to increased insurance revenues and potentially driving long-term earnings growth through expanded market penetration.
  
• Gjensidige's commitment to sustainability initiatives and digital transformation, such as improved digital claims reporting and customer solutions, is aimed at reducing future claims costs and improving operational efficiency, thereby enhancing net margins.
  
• The pending sale of the Baltic business, recognized as discontinued operations, is expected to streamline operations and potentially lead to a one-time positive impact on earnings, while also allowing a refocus on core Nordic markets, which could improve the group's efficiency and profitability in the medium term.

Gjensidige Forsikring Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gjensidige Forsikring's revenue will grow by 2.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.2% today to 16.9% in 3 years time.
• Analysts expect earnings to reach NOK 8.0 billion (and earnings per share of NOK 16.62) by about September 2028, up from NOK 6.3 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as NOK9.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.1x on those 2028 earnings, down from 21.3x today. This future PE is greater than the current PE for the GB Insurance industry at 15.1x.
• Analysts expect the number of shares outstanding to decline by 2.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.16%, as per the Simply Wall St company report.

Gjensidige Forsikring Future Earnings Per Share Growth

Risks

• Heightened geopolitical tensions and significant macroeconomic uncertainty could impact Gjensidige's financial stability and market performance, affecting revenue and earnings.
  
• The ongoing international trade disputes and tariff threats pose risks to both property and motor insurance segments, potentially leading to increased claims expenses and impacting net margins.
  
• Potential regulatory investigations and increased scrutiny, such as the Danish Competition Authority's inquiry into pricing practices, could result in changes to the company's pricing strategies and affect earnings.
  
• Increase in churn among larger, less profitable customers, particularly in Denmark, poses a risk to revenue growth and could affect overall profitability.
  
• The volatility in loss ratios due to weather and large losses, such as those experienced in Norway, may introduce unpredictability in claims expenses, impacting net income and financial forecasting.

Valuation

• The analysts have a consensus price target of NOK259.366 for Gjensidige Forsikring 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 NOK310.0, and the most bearish reporting a price target of just NOK185.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK47.2 billion, earnings will come to NOK8.0 billion, and it would be trading on a PE ratio of 18.1x, assuming you use a discount rate of 6.2%.
• Given the current share price of NOK270.0, the analyst price target of NOK259.37 is 4.1% 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.