PZU – More Life In a Crisis
The coronavirus crisis is probably easier to navigate for the insurance industry than for banks, by which we do not mean it is easy. For example, quarantine lockdown will most likely slow down growth in non-life premiums amid lower sales of passenger cars and tighter management of disposable income by households. That being said, the momentum in non-life insurance business was about to decelerate anyway even before the epidemic due to a high market penetration rate. On the other hand, as the pandemic spreads across the globe, the life market is probably poised for a revival. This is confirmed by studies which revealed that the coronavirus's high death toll has boosted coverage inquiries even among young people - a demographic where the penetration rate to date has been the lowest. For PZU, one major risk factor moving forward is its banking division, expected to contribute 38% less to consolidated earnings this year, as well as necessitating a goodwill write-down. On top of that, PZU's investments are bound to perform far worse in 2020 in terms of income generation, in particular when it comes to the stock market and real estate. Looking at current bond yields, to achieve decent investment returns in the years ahead will be a challenge, which, however, can be tackled with more acquisitions. After taking into consideration the change economic landscape, we revise our 2020 and 2021 net income forecasts for PZU downward by 23% and 16%, respectively. We want to emphasize that the expected goodwill impairment has no effect on valuation. In spite of lower profits, we expect ROE to hold at a high 15% going forward, and we anticipate uninterrupted dividend yields of 8%-9% in the coming years. All in all, we see PZU as one of the safest bets for pandemic times in the financial sector, and so we reiterate our buy call on the stock.
Powszechny Zaklad Ubezpieczen is an insurance group based in Poland. Co. is engaged in offering a broad range of insurance and financial products. Co. pursues three main lines of business: Property and Casualty Insurance, offered by PZU; Life Insurance, offered by PZU Zycie; and Open-end Pension Funds, offered by PTE PZU, the manager of OFE PZU Zlota Jesien. Co. maintains a network of sales and service outlets including 500 outlets throughout Poland, including 243 shared outlets (common for PZU and PZU Zycie), 137 outlets of PZU Zycie and 120 outlets of PZU. Co.'s business is focused on the Polish market but it also conducts insurance business in the Lithuanian and Ukrainian markets.
Set up in 1986, mBank (originally BRE – Export Development Bank) is Poland’s 4th largest universal banking group in terms of total assets and 5th by net loans and deposits at the end of June 2019. mBank has one of the oldest brokerages in Poland – we have been providing brokerage services since 1991 - and the biggest, serving about 300 ths clients.
We provide all brokerage services available in the Polish capital market (i.e. Warsaw Stock Exchange, non-public markets and forex) in a way that meets the expectations of all groups of investors, both individual and institutional. Participating in the dynamic growth of the Polish capital market since its inception, we have acquired competences and experience needed to provide the highest quality of service and we have won the trust and satisfaction of our Clients.
Over the past decade, mBank's Equity Research Team has been consistently ranked among the top research teams in Parkiet's annual institutional investor surveys (Parkiet is Poland's leading daily business newspaper). mBank analysts provide coverage on an extensive list of companies, mainly in Poland but also elsewhere in the CEE region: Austria, Czechia, Portugal, Ukraine and Hungary.
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- Get direct access to senior management teams at listed companies (over 30 meetings in 2018),
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