EUR 150.00 For Business Accounts Only

PZU: High DY – something to look forward to?

We upgrade PZU to NEUTRAL from SELL. The stock is down 15% since mid January. We have increased our FV by 4% to PLN 38.0, which implies 0% upside. This was on the back of raising 19-21E insurance business results by +4%/+3%/+7% as trading income was ahead of expectations while claims were slightly below in 1H19. This allowed us to also increase DPS to PLN 2.9 and PLN 3.0 per share to be paid in 2020-21E versus PLN 2.7 and PLN 2.8 before, supported by the CEO declaration of a rising dividend. At the same time, due to a higher BFG charge, personnel expenses and elevated net provisioning in the corporate segment, we have lowered our expectations for the banking segment by -7%/-3%/-5% in 2019-2021E. Overall, we have revised 2019-21E NI by +2%/+1%/+4%. We forecast NI of PLN 3.08bn (-4% YoY), PLN 3.21bn (+4% YoY) and PLN 3.34bn (+4% YoY) in 2019-21E. Our earnings expectations still differ from consensus by -6%/-5%/0% in 2019-21E. PZU now trades at a 2020E P/E of 10.2x, a 5% premium to international peers (on 9.7x), and at a similar premium to its 5Y average forward P/E of 9.7x. We believe it is fair given its high dividend and high ROE, but the insurance business is losing momentum given tough motor market pricing conditions impacting a slowdown in GWP and also higher claims as it will be difficult to repeat the buoyant conditions seen in 2018.