Aksigorta A.S. (AKGRT TI) - Operationally solid results: Maintain Buy
Aksigorta announced 2Q19 net earnings of TRY90m (+15% q-q, +101% y-y), surpassing both the RT consensus (TRY84m) and our (TRY84m) estimates. High technical profitability drove the strong 2Q results, especially supported by margin improvement in Motor Own Damage (MOD) claims. Technical NIM reached 3.2% from 1.8% a year ago on eased combined ratio (93% vs 97% in 2Q18), thanks to the decline in claims. Premium retention remained high at 57%. Net investment income margin, on the other hand, rose to 9.4% from 7.6% a year ago on high TRY deposit rates. Trailing ROE rose to an eye-catching 45% from 26% a year ago.
We expect earnings momentum to accelerate, as the outlook for technical profitability now appears more promising for Aksigorta. We have raised FY19-21E net earnings by 15%/8%/15%, indicating 50% y-y earnings growth for FY19. Our GGM-based 12M TP is now TRY5.90 (prev. TRY5.11), assuming CoE of 22%, beta of 1.0 and long-term ROE of 36% (prev. 31%). The stock is available at attractive valuations of 3.8x FY20E P/E and 1.4x FY20E P/B for 3-year (2019-21E) EPS CAGR of 19% and FY20E ROE of 40%. We maintain our BUY recommendation on the stock.
Aksigorta is an international insurance group. Co.'s main operations include insurance activities based on non-life insurance branches, including primarily fire, marine, personal accident, engineering, agriculture and health. Co. focuses its business activities in Europe and Asia, which are grouped around four segments: Belgium, U.K., Continental Europe and Asia and served through a combination of wholly owned subsidiaries and partnerships with financial institutions and key distributors around the world. Co. operates in Turkey.
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