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GRUPO CATALANA OCCIDENTE: 1H'20 RESULTS (ANÁLISIS BANCO SABADELL)

2Q'20 vs 2Q'19 Results
Premiums: € 1.007 Bn (-6.0% vs. -7.6% expected);
Technical Result: € 60.9 M (-49.7% vs. -51.7% expected);
EBT: € 72.53 M (-50.1% vs. -52.2% expected);
Net Profit: € 59.1 M (-45.4% vs. -49.0% expected);
1H'20 vs 1H'19 Results
Premiums: € 2.439 Bn (+3.7% vs. +3.0% expected);
Technical Result: € 164.6 M (-30.0% vs. -31.1% expected);
EBT: € 200.3 M (-31.3% vs. -32.3% expected);
Net Profit: € 149.3 M (-27.7% vs. -29.6% expected and n/a expected by the market consensus);

Has released 1H’20 Results slightly above our premium and recurring result estimates in both the Traditional business (around 50% of premiums), which grew +10.7% vs. 1H’19 and vs. +9.3% BS(e) and Credit Insurance (around 50% of premiums), which decreased by -69.9% vs. 1H’19 (-70.4% BS(e)).

In the Traditional business we see dynamism in premiums of +8.2% vs. 1H’19 (+7,1% BS(e)), where we stress +3.7%i n multi-risk and in health thanks to the incorporation of Antares’s premiums. The CR stands out negatively at lows of 88.4% vs. 90.1% BS(e) and vs. 92.5% in 1Q’20, mainly explained by the lower claim frequency (activity closures).
In Credit Insurance, as expected, the gross CR rose to 94.3% (slightly better than 95.4% BS(e)) and vs. 92.4% in net terms due to Covid-19 defaults and vs. 83% in 1Q’20 and 75% in 1H’19. This explains the strong decline in recurring result. The strong reduction in country risk is significant, especially Spain and Portugal (~19.2% of the premiums acquired) by around -18% (-20% BS(e)) without state collateral. Note that the company rejected to join the CCS framework agreement (Consorcio de Compensación de Seguros).
Thus, GCO offers detailed visibility in all the countries where it has signed reinsurance contracts. Note we must add the usual reinsurance contract, whereby 37% of premiums and the associated expenses are transferred. The proportional/quota share state reinsurance contracts have been signed with Germany, Belgium, the Netherlands, Denmark, Luxembourg, France, among others. In these cases, around 50% of the business premiums would be “protected”, according to our calculations, which leads us to reiterate our calm message on estimated losses BS(e) at the end of the year that would be very limited (around € 50 M in recurring result with a net CR that would stand at 105%, 116% in gross terms. Note that S-II as of Dec’19 came in at 213%, and it would fall by 29pp in an adverse scenario, above 175%. This adverse scenario not only assumes a drop in premiums and its impact on earnings of future premiums but also increased claims and a drop in financial markets. This should underpin the share price to some extent, as downward risks are very limited. For this reason, after the immunisation of a significant percentage of defaults, and with the Management Actions, we reiterate our BUY recommendation. Target Price: € 26.90/sh. (upside 34.63%). The share price has slid -33% since February, -5% vs. sector. Conference Call 16.30 (CET).