EUR 115.38 For Business Accounts Only

MAPFRE: 3Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

3Q'20 vs. 3Q'19 Results
Premiums: € 4.566 Bn (-10.8% vs. -8.8% BS(e) and +6.1% consensus);
Technical Result: € 366.5 M (--11.4% vs. 24.3% BS(e) and -0.2% consensus);
EBT: € 324.1 M (+32.3% vs. 15.1% BS(e) and 39.3% consensus);
Net Profit: € 179.7 M (+10.3.3% vs. +76.6% BS(e) and 86.5% consensus);
9M'20 vs. 9m'19 Results
Premiums: € 15.549 Bn (-11.9% vs. -11.3% BS(e) and -7.0% consensus);
Technical Result: € 1.036 Bn (-14.1% vs. -20.5% BS(e) and -12.9% consensus);
EBT: € 860.6 M (-13.4% vs. -17.7% BS(e) and -11.7% consensus);
The company obtained € 180 M of Net Profit in 3Q’20 (2x vs. 3Q’19, which was affected by impairments), which stands around +10% above expectations, which in our view would be due to a smaller impact from natural catastrophes on the quarter. There were virtually no one-off impacts in 3Q’19, with recurring Net Profit totalling € 168 M (implied RoE of ~8%).
By businesses, the operating result in Non-Life reached € 295 M (-1% vs. 3Q’19), around +30% above our expectation (+17% vs. consensus), with solid performance in premiums (+4.8% vs. 3Q’19, in line with BS(e) and beating the consensus) and a better Technical Result (Combined Ratio ~92.2% vs. 97% BS(e) and 96.6% consensus). This offsets the bigger-than-expected drop in the Financial Result (-60% vs. -34% BS(e) and +9% consensus) due to lower realisations. The Life insurance business has seen heavier pressure, with premiums falling -29% (vs. -21% BS(e) and -11% consensus), accelerating to -54% in the operating result due to pressure on the financial margin. In reinsurance, no additional provisions have been made for Covid-19 (€ -57 M impact on Net Profit in 1H’20), and the business has benefited from lower natural disaster claims, where it appears MAP has recovered part of the provisions made in 1H’20 (to be confirmed in the presentation).
The performance of its balance sheet improves with a slight increase in equity (+1%), meaning an improvement of the solvency ratio to 184% (vs. 177% in 1Q’20), in line with our estimate.
The company announced a positive surprise in dividend with € 0.05/sh. of interim DPS’20 (-13% vs. 2019), meaning a yield of around 4%. Market expectations (BS(e) in line) suggest a -25% cut to DPS’20 and this interim payment usually means 40% of the annual DPS. Thus, a linear cut would mean a total DPS’20 of around € 0.125/sh. with a yield >9% (vs. € 0.107/sh. BS(e) and consensus). In any event, MAP announced that the decision on the final DPS will be made ahead of the General Meeting (2Q’21).
We should see a positive share price reaction backed by the lack of deterioration on the operating level and after the dividend payment has been confirmed. At the current trading levels, after underperforming the Ibex and its sector by -14% in 2020, MAP is trading at a P/E’20-21 of >7x and a P/BK ratio of 30% discount to the sector. Despite its higher risk, as the company is undergoing a clean-up process, we believe that this discount is excessive. Bearing in mind that the payment of the dividend has been confirmed and considering the stock’s trading multiples, we see an investment opportunity at the current levels. We reiterate BUY.