Dutch insurance behemoth Aegon will be revealing quarterly figures on November 13. While 2020 is surely not going to be remembered as a great year for life insurers, the company is doing its best to rationalize its operations in an attempt to contain costs and revamp earnings in core markets. Let’s take a look at what analysts expect.
- Expected revenues: €11.06B, expected EPS: €0.24.
- The group is undergoing a restructuring to cope with the pandemic.
- Aegon shares are down 40% this year.
What’s up with Aegon?
With operations in 20 markets and more than 26,000 employees, Aegon focuses primarily on life insurance, pensions and asset management.
For obvious reasons, the pandemic has taken a heavy toll on the company’s balance sheets. An increase in mortality and a decrease in interest rates in the United States alone (where Aegon runs two thirds of its business through subsidiaries Transamerica and World Financial Group US), have curtailed underlying pretax earnings by 30% in the first half of the year. In the same period, overall revenues decreased 72% to €11.23 billion, while diluted net income decreased 70% to €173M. As a result, its shares are down 40% from the beginning of 2020.
How do they plan to turn things around?
To cope with the downturn, Aegon’s CEO, Lard Friese — who took the reins last May after leading Dutch competitor NN for six years, pledged in August to review operations in some of the company’s markets.
Fast forward three months, and the group restructuring has already started: on October 9, Aegon announced its plans to sell Stonebridge, a direct-to-consumer accident insurer based in the UK, to the Global Premium Holdings group for £60 million (€65M).
Again, on October 26, Reuters reported that the corporation was seeking buyers in an auction for its Eastern European unit, which focuses primarily on Hungary but also operates in Poland, Romania and Turkey. This would be a nice shot for Aegon, as the branch could be valued at around €650 million. European rivals NN, KBC and Allianz are all potential bidders.
Finally, in the last days of October, Aegon finalized the sale of what arguably is its most widely recognized symbol: the Pyramid building complex in San Francisco. The property includes the Transamerica pyramid skyscraper, which was built by Transamerica in the early ‘70s and sets the city’s skyline apart from any other. The insurer has sold it to a real estate joint venture for $650 million, retaining the right to use the pyramid as its logo and trademark. Aegon itself will finance the purchase with a mortgage loan, which will provide its portfolio with further diversification.
The Transamerica Pyramid
What do analysts think?
On average, analysts estimate Aegon will show €11.06 billion in revenues for the three-month period ended in September. That would represent a 7.2% decrease compared to last quarter, when the company beat expectations (€9.29B) with the quite surprising figure of €11.92B.
As for the bottom line, analysts are more optimistic. According to them, Aegon should show earnings per share of €0.24, a figure that would entail an increase both compared to Q2 (€0.08) and Q3 2019, before the pandemic, when the company posted earnings per share of €0.21.
On October 1, JP Morgan increased its rating of Aegon shares from ‘neutral’ to ‘overweight’, while Zacks Investment Research raised it from ‘sell’ to ‘hold’. These evaluations mark an improvement on those the stock received in late August, when UBS reiterated its ‘sell’ rating and Bank of America downgraded it from ‘neutral’ to ‘underperform’.
Aegon’s restructuring process will take time, and its effects won’t be tangible before the next round of earnings. Moreover, the new wave of COVID-19 could increase insurance claims more than expected and make central banks keep rates low for a prolonged period, two factors that can eat into a life insurer’s profits.
On the other hand, more than one valuation ratio currently indicate that Aegon could be undervalued: its 5-year PEG (price/earnings over the 5-year estimated growth of earnings) is at 0.28, while its Price-to-book ratio, which compares the stock price to the company’s book value, is at 0.2. Both these ratios tend to indicate undervaluation when they fall below 1. Also, Aegon’s estimated annual dividend yield is 5,24% at current price.
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All views, opinions, and analyses in this article should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.