NN Group: Stable Beats That Affirm A Purchase Ranking (OTCMKTS:NNGRY)

Yesterday, NN Group NV launched its H1 monetary launch (OTCPK:NNGPF) (OTCPK:NNGRY). Wall Avenue positively reacted to the quarterly efficiency, and NN Group was up by 10%. Right here on the lab, we now have a superb grip on the EU insurance coverage enterprise, and this yr, we now have already reported twice in regards to the Dutch insurance coverage firm. Following the US regional banking disaster and Credit score Suisse growth, we investigated how NN had no publicity to CS’s AT1 company bonds and the way the corporate was backed by “Monetary Flexibility And A Stable Stability Sheet.” Our purchase score goal was supported by NN having 92% of the Authorities bonds with a minimum of an A credit standing. As well as, the corporate was above the Solvency II ratio necessities with a stable “capital technology.”

Q2 outcomes with our Purchase case evolution

Regardless of a damaging inventory worth decline year-to-date, we nonetheless consider that NN Group is a stable funding name right here on the Lab. Trying again to our evaluation, we often cowl the primary ratio evolution in our insurance coverage replace. Listed here are our essential forward-thinking and key proof highlights:

In H1, NN’s working capital technology reached €997 million and was 14% increased than consensus expectations. The Netherlands’ non-life phase predominantly drove this. As well as, NN’s free money movement reached €832 million (with a 23% beat) attributable to a one-off remittance for a reinsurance transaction. Given the H1 outcomes, we at the moment are projecting a 2023 OCG of a minimum of €1.8 billion; Consistent with our projection (to be above the regulatory necessities), the group Solvency II ratio was 9 foundation factors increased than Wall Avenue. Market impacts favored it attributable to credit score spreads evolution. In numbers, the corporate ratio elevated from 197% to 201% and was partially offset by capital outflows for shareholders’ remuneration (Fig 1). Right here on the Lab, we don’t make projections on the steadiness sheet ratio; nonetheless, contemplating the interim dividend cost in September-end (Fig 3) and the residual buyback (estimated at €55 million), we anticipate a 5 % drop within the Solvency II ratio, however together with the quarterly capital technology of a minimum of €400 million, we consider that NN will be capable of obtain a 200% capital ratio totally consistent with regulatory necessities; The corporate elevated its OCG steering of €1.8 billion due to a mixed 91-93% ratio. This was pushed by IFRS 17 evolution (and could be very a lot consistent with our EU cross-coverage). To be particular, below the outdated IRS 4 accounting foundation, the mixed ratio was within the 93-95% vary; With this projection on the working capital technology, given a decrease mixed ratio evolution, we derived a 2024 EPS of €5.6 per share; The Maintain money place was once more crushed and reached €1.9 billion (Fig 2); The corporate’s interim DPS elevated by 12% to €1.12 per share. Our dividend forecast estimates a 2024 complete DPS of €3.37 per share with a projected yield (at present market worth) of 9.01% (Fig 3). That is primarily based on the truth that NN Group is dedicated to a progressive capital return coverage and has an ongoing buyback for €250 million. Relating to the share repurchase, 78% is already accomplished.

Fig 1

Fig 2

Fig 3

Conclusion and Valuation

As anticipated by the CEO, the corporate stays “nicely on observe to ship on our formidable strategic and monetary targets for 2025 regardless of the continued macroeconomic challenges.” Given the OCG 2023 goal at €1.8 billion, we see achievable the 2025 outlook with the expectation to develop the FF/OCG ratio over the plan. Right here on the Lab, we consider that Wall Avenue isn’t giving any credit score to NN Group growth. Curiously sufficient, given the H1 outcomes and the stable observe document, we anticipate that NN’s share worth decline was not matched by a fall in earnings. As well as, the corporate returned greater than €7.8 billion since its IPO date in 2014. This represents virtually 80% of its market cap in lower than ten years. Consistent with our second-tier insurance coverage protection (Aegon and Aviva), we worth NN Group with a P/E of 8x (whereas EU top-tier firms are valued at 10x, i.e., Allianz, AXA, Zurich, and Generali), we derived a goal worth of €44.8 per share, confirming a purchase score. We must also take into account the €1.9 billion in Money on the Holding degree as draw back safety. On the dangers profile, the corporate is uncovered to reductions in fairness market worth, hostile claims in P&C and life divisions, and regulatory adjustments in key markets the place it operates. As well as, the corporate is uncovered to credit score default threat, given its vital funding portfolio.

Editor’s Notice: This text discusses a number of securities that don’t commerce on a significant U.S. change. Please pay attention to the dangers related to these shares.