PZU: Good whatever the weather (stays BUY)

We keep PZU as a BUY, while tweaking our price target (PT) to PLN 49.9 (down from PLN 51.7) on the back of cuts in our forecasts, our lower long-term growth assumptions in our valuation model, and declines in Alior Bank’s profits. We perceive PZU as a value play, offering a solid business proposition of a significantly above-average profitability profile (a medium-term ROE of 20%, on our forecasts) and some defensive characteristics. Indeed, the pricing cycle in non-life and the lack of growth in group life cap the EPS growth potential in the coming quarters, in our view; however, at the same time, even in this environment, the reported ROEs land at 20%+. In our view, the market valuation does not appreciate that, even at the bottom of things (likely 2020E, on our expectations), PZU is likely to book profitably above most of the CEE financials at their cycle peaks. Such profitability and its defensive nature allows PZU to pay high dividends, in our view, and we reflect the continuation of nominal DPS growth in the coming years in our forecasts. This lands the 2019E dividend yield in a range of c.7.5%+.