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GRUPO CATALANA OCCIDENTE: FY2020 RESULTS (ANÁLISIS BANCO SABADELL)

FY2020 vs. FY2019 Results:
Premiums: € 4.426 Bn (+0.3% vs. +0.5% BS(e));
Operating Result: € 339.8 M (-36.9% vs. -37.2% BS(e));
Net Profit: € 262.3 M (-32.0% vs. -36.2% BS(e));

The company has released results in line with expectations in premiums (+0.3% vs. 2019 and vs. +0.5% BS(e)) and marginally higher than expected in the rest of the figures.
The Recurring Result for the Traditional business reached € 238.6 M, +12.5% vs. 2019 (+12.3% BS(e)), and as we expected speeding up vs. 9M’20 (+6%). We highlight the combined ratio (CR) at a record low of 88.6% vs. 89.3% BS(e) and 90.5% in 2019, with all businesses performing positively (thanks to both the lower frequency of claims and to cost reduction), and especially in Motor insurance (25% of total premiums for the Traditional business), with a CR of 90.3% vs. 90.7% BS(e) and 94% in 2019.
In Credit insurance, the gross CR stood at 94.1%, beating our estimate of 94.5%, although rising slightly vs. 9M’20 (93.4%). This lower CR than expected, along with the better claims coverage thanks to the Govt. reinsurance scheme, is what has allowed the Net Technical Result to improve to € 81.2 M (-74.8% vs. 2019; compared to our estimate of -76%).
Despite this better performance in the Net Technical Result, the Recurring Credit Insurance Result reached € 50.4 M, -78.8% lower than in 2019, and completely in line with our estimates (as there was lower complementary activity than expected).
The difference on the Net Profit level can be fully explained by the smaller burden of minority interests (stemming from Atradius, mainly).
The Solvency II ratio was favourable, closing at 216% vs. 213% BS(e) and 213% in 2019.
The strong financial robustness, the advancing operating trends, the Government reinsurance contracts being in force through June’21 and the cleaned up portfolio (with the TPE falling -10%) mean we see very little downside risk in the share price. Moreover, everything suggests that the company’s cautious management could even translate into provisions being recovered in credit insurance in the medium term. We do not expect the CR in the Credit Insurance business to worsen (likewise assuming a gradual economic recovery). All this means we reiterate our investment thesis. The conference call started at 16:30 (CET). BUY. T.P. € 35.50/sh. (upside +15.07%).