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MAPFRE: 2Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

2Q'20 vs. 2Q'19 Results
Premiums: € 4.883 Bn (-61.0% vs. -58.2% expected and -57.0% expected by the market consensus);
Technical Result: € 316.0 M (-61.7% vs. -65.6% expected and -54.7% expected by the market consensus);
EBT: € 182.2 M (-75.7% vs. -62.7% expected and -56.5% expected by the market consensus);
Net Profit: € 143.9 M (-61.6% vs. -63.4% expected and -56.5% expected by the market consensus);
1H'20 vs. 1H'19 Results
Premiums: € 10.983 Bn (-12.3% vs. -9.5% expected and -8.1% expected by the market consensus);
Technical Result: € 670.0 M (-18.8% vs. -30.3% expected and -19.6% expected by the market consensus);
EBT: € 536.5 M (-28.4% vs. -27.0% expected and -21.1% expected by the market consensus);
Net Profit: € 270.7 M (-27.7% vs. -29.9% expected and -23.1% expected by the market consensus);
In 2Q’20 the company obtained € 143.9 M of Net Profit (-62% vs. 2Q’19), slightly below the consensus figure (-56% vs. 2Q’19) and more in line with our estimate (-63.5% vs. 1Q’19). Net Profit was affected by € -129 M of one-offs: (i) an increase in natural disasters seen in 1Q’20 (an extra € -10 M); (ii) an impact from Covid-19 on claims in Mapfre Re, to be detailed in the results presentation at 13:30 (CET) (€ -57 M); (iii) impairments and restructuring, mainly in the US (€ -15 M); and (iv) provisions on real estate investments in Spain (€ -20 M). Thus, excluding these one-offs, Net Profit would have improved +22%.
The impact from Covid-19 on the 2Q’20 Results underscore in a drop in premiums, especially in Non-Life (-17% vs. -7% BS (e ) and -13% consensus), offset by lower claim frequency, which left the combined ratio at 93.6% in the 2Q’20 (vs. 95.3% BS(e) and 96.5% consensus). This widely offsets the extra claims, the business slowdown and the lower financial result (-57%, in line with BS(e)). Thus, the operating result in the Non-Life segment only falls by -6.1% vs. 2Q’19. The performance of the Life business was more in line with our expectations, with a -28% decline in operating result vs. -22% expected and -13% consensus.
By countries, operating performance appears to be more positive in all of the company’s direct insurance subsidiaries, especially Brazil, LatAm, Eurasia and US, whereas Mapfre RE’s performance was disappointing, as it continues to make losses (€-22 M in 2Q). That said, this performance is backed by a reduction in the number of claims during the lockdown and thus, we believe it cannot be extrapolated.
With this in mind, the improving trend in the underlying performance in direct insurance seen in previous quarters apparently continues although with additional impairments that tarnish the performance and with Mapfre RE as subsidiary that is now facing problems. We expect a neutral share price reaction. BUY. Target Price: € 2.17/sh (upside 33.29%)