AXA : No change in trend…

>Publication date 26/04/2017 13:15 - Writing date 20/04/2017 - - Shareholders - Voting rights - Stake - Mutuelles AXA - 23.93% - 14.13% - Employees - 7.40% - 5.70% - Free float - 68.47% - 79.92% - - Secondary market spreads - Issuer - Rating - Maturity - Cou-pon - Price - ASW - Yield - Tier 1 - - - - AXA - BBB - PNC17 - 6.211 - 103 - 40 - 0.1 - Perp Tier 2 - AXA - BBB+ - PNC24 - 3.941 - 103 - 306 - 3.5 - AXA - BBB+ - PNC25 - 3.875 - 102 - 305 - 3.6 - Allianz - A+ - PNC 24 - 3.375 - 105 - 233 - 2.7 - CNP - BBB+ - PNC24 - 4.000 - 102 - 322 - 3.6 - Scor - A - PNC25 - 3.875 - 104 - 278 - 3.3 - Cardif - BBB - PNC25 - 4.032 - 99 - 352 - 4.1 - Dated Tier 2 - AXA - BBB+ - 40/20 - 5.250 - 111 - 152 - 1.3 - AXA - BBB+ - 43/23 - 5.125 - 115 - 235 - 2.4 - AXA - BBB+ - 47/27 - 3.375 - 102 - 241 - 3.1 - CNP - BBB+ - 40/20 - 6.000 - 113 - 216 - 1.9 - ALZ - BBB - 47/27 - 3.099 - 105 - 191 - 2.6 - Scor - A - 47/27 - 3.250 - 101 - 242 - 3.1 - - Equity data - / - / - Business indicators for Q1 2017 due out on 9 May 2017 - Strengths/Opportunities - - Remarkable geographical spread, with successful refocusing on emerging markets, especially those in Asia, which enables AXA to benefit from more vibrant growth than in its mature markets and the growing need for insurance (dependency). - A business mix dominated by the life & savings segment following the group's successful shift to more lucrative products with a high technical component (health, protection, retirement). - A successful change of management team in 2016 which maintained continuity with the past, given that Thomas Buberl has been in the group since 2012. The management change came at the same time as the launch of a new strategic plan for 2020, with conservative and realistic objectives, taking account of a protracted low interest-rate environment. Management's capacity to bring its strategic plans to successful completion is one of the group's strengths. - Sound fundamentals: stable, recurring operating results, a strong Solvency II margin (197% at end-2016), conservative asset/liabilities management and significant liquidity. - Weaknesses/Threats - - The risk that interest rates might remain at low levels over a long period. Reinvestment rates, servicing of guaranteed rates, the ability to maintain the financial margin in life activities and management of the US variable annuities portfolio remain problematic, but Axa is managing the situation fairly well. - High amount of intangible assets in the balance sheet that weigh on available capital and also a large proportion of soft capital in regulatory Tier 1 capital. However, the situation should improve in the coming years with call dates falling due for a number of perpetual bonds that will not be replaced. - A proportion of "more risky" assets (high yield, unrated, hedge funds, private equity, property, etc.) as a percentage of its capital that is higher than at other insurers. One of the group's few weak points, underscored by S&P, which raised the rating earlier this year, however. - Credit opinion: Stable; market recommendation: Neutral Benchmark - 2016 saw a major event for AXA, the stepdown of Henri de Castres who headed the group for 17 years. The transfer of power to Thomas Buberl, who has been in the group for four years, seems successful. 2016 was also the year of the launch of a new five-year strategic plan: again, carrying on from the previous one, with a focus on sustained earnings growth throughout the course of the plan, underpinned by selective growth, cost savings, improved technical margin, active capital and cash management, and a shift in the business model towards more digitisation, skills inflow and more customer contact. Lastly, 2016 was also the year of S&P's rating upgrade which confirmed the 'AA-' status already reached by the other two agencies and our credit opinion. We believe that the ratings are set to remain steady in the medium term. We reiterate our Neutral recommendation. All in all, and excluding external factors (French elections), these bonds perform in line with the market. AXA also offers various retail subordinated bonds that were not called on their first call dates, for a total amount of € 1.5bn. If, from December 2025, these bonds are no longer eligible for the solvency margin as they would not be Solvency II-compliant, AXA will have an incentive to repay them. Among these debt securities, our preference goes to the Tier 1 steepener floored at 3.75%.