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GRUPO CATALANA OCCIDENTE: 9M’20 RESULTS (ANÁLISIS BANCO SABADELL)

3Q'20 vs. 3Q'19 Results
Premiums: € 927.8 M (-3.6% vs. -3.1%a expected);
Technical Result: € 71.9 M (-44.2% vs. -47.6% expected);
EBT: € 96.4 M (-32.2% vs. -35.6% expected);
Net Profit: € 75.8 M (-24.7% vs. -30.5% expected);
9M'20 vs. 9M'19 Results
Premiums: € 3.367 Bn (1.5% vs. 1.7% expected);
Technical Result: € 236.5 M (-33.40 vs. -34.65% expected);
EBT: € 296.7 M (-31.4% vs. -32.56 expected);
Net Profit: € 225.1 M (-26.7% vs. -28.6% expected);
The company released at yesterday’s closing bell very good 9M’20 results that came in slightly worse only in premiums (due to Credit, which has been gradually reduced risk exposure), and better than expected in all activity margins thanks to the positive performances of the Traditional and Credit businesses. Thus, this set of results evidences a balanced portfolio mix, with margin improvement in the former (with CRs at their lows) that allows the company to mitigate the rise in the claim rate in the latter. Specifically, in the Traditional business (61% of premiums as of 9M’20), premium growth was +6.2% vs. 9M’19 and vs. +5.8% BS(e), although the trend slows vs. the 1H’20 (+8.1%), and the Combined Ratio (CR) stood at its lows of the past few years (88.3% vs. 89.1% BS(e) and 90.2% in the 1H’20) due to the lower claim rate in Health and Autos as a result of the current Covid-19 crisis. Thus, the recurring result totalled € 194 M, +10% vs. 9M’19 (+8% BS(e) and +11% in the 1H’20).
The best reading, however, comes from the Credit business. We highlight the -5% drop in premiums vs. -4% BS(e) stemming from management actions (reduction of TPE or risk accumulation) to offset the rise in the claim ratio (due to the current scenario), yet only to levels of 58.4%, very far from levels of ~90% hit in the previous 2008-09 crisis. This has allowed the company to release a profitable Technical results, with a gross CR of 93.4% (vs. 94.3% in the 1H’20 and 94.6% BS(e)). This fact offsets the negative result in Reinsurance. In this regard, the state reinsurance contracts (covering around 50% of premiums in the lending business) offer a positive result to the group with greater deterioration of the claims ratio of buyers covered in the different countries, which is not materializing. As of 9M’20, the transfer of premiums after commissions is higher than the claims transferred, which explains the losses in the reinsurance result. Notwithstanding, the recurring result of the Credit business came in at € 42.5 M (-76% vs. 9M’19, slightly better than the -77% figure we expected). Net Profit totalled € 225.1 M, -27% vs. 9M’19 and vs -28% BS(e). We expect a positive share price reaction, as the claim ratio seems to be under control and the company’s good management has been made clear. Conference call on 2 November at 11:30 (CET). BUY. Target Price: € 26.90/sh (upside 38.95%)