PZU - The Antidote to COVID
We maintain a buy recommendation for PZU after updating our models to assume slightly higher dividends in 2021 and bigger earnings in 2022 after a likely normalization of claims. This year, PZU has so far exceeded the market’s expectations with its core quarterly figures, including an impressive 23% beat achieved in Q3, and in the fourth quarter earnings could again reach record levels due to COVID-19 restrictions which are likely to curtail travel, and hence motor insurance claims, more than enough to offset any rise in coronavirus death claims. According to the latest police statistics, traffic accidents, which normally would be on the rise in Poland heading into the holiday season, have dropped to numbers recorded during the spring lockdown. With measures also in place to curb travel during the annual two-week school holidays that start in mid-January and end in late February depending on the region, PZU can also look forward to a lush first quarter of 2021. Poland has a relatively low life penetration rate and as a result even if our mortality rate were to jump 85% the subsequent rise in insurance claims would not exceed 10%. At the same time, there is a good chance that life insurance sales will go up thanks to the coronavirus epidemic, generating higher premiums for insurers that at this point are probably not yet factored into the forecasts of market analysts. After a stellar FY2020, we expect PZU to make a generous payout to its shareholders in 2021 of PLN 2.1bn total and PLN 2.42 per share. We are anticipating a dividend payout ratio of 101% of consolidated earnings, which will be lower than the standalone profit. Despite all this, PZU’s usual premium over peers has shrunk to 14% from a 5-year average of 78%, and its stock is among Europe’s worst performers as the market disregards the minimal impact of the pandemic on earnings capacity (lower discount rate) and overlooks above-average ROE. PZU is a compelling case to buy for robust earnings in the next two quarters and high, 9%-10% DY.
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.
Clients get access to a comprehensive selection of research products including daily market insights, monthly roundups, macroeconomic views, industry- and company- specific analyses, investing strategies, earnings comments, etc.
We give our institutional clients numerous opportunities to connect with industry professionals, top executives, and leading analysts:
- Get direct access to senior management teams at listed companies (over 30 meetings in 2018),
- Engage in our many industry events, featuring listed Polish and global firms (in 2018, we hosted sector-themed conferences around industrials, chemical companies, telecoms, retail, and financials, and co-hosted a Best of Poland investors' with Commerzbank and the Warsaw Stock Exchange),
- Stay informed through an array of enlightening discussion panels, workshops, and briefing sessions with regulatory officials.
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