12.08.2019

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UNIQA confirmed at HOLD, TP EUR 8.80 - Good combined ratio trend despite higher IT costs

- Consensus still very high relative to company guidance
- Combined ratio continues improving trend, some pressure from IT costs
- Inflated bond/real estate valuations could lead to short term favorable effects
- Currently valued at a PER premium of 14%-17% (vs. up to 30% earler this year)
        

We confirm our HOLD recommendation with a TP of EUR 8.8 per share. The current FY is likely to be impacted by higher IT related expenses (continuation of the trend since 4Q 18) that, in our view could be compensated by somewhat higher valuation gains on bonds and real estate due to the current low yield environment. Additionally, we see further improvements in the combined ratio on the horizon, despite the higher costs (improving claims ratio). UNIQA is trading at a PER premium of 14%-17% relative to the peer group, with its dividend yield continuing to be high at around 7% and secured by the companys excess capital and strong solvency position in the mid-term, in our view.

Higher IT related operating expenses: In 4Q 18 and 1Q 19 the cost ratio increased by 0.9%p and 1.2%p yoy, respectively, driven by an increase in costs related to a new insurance platform (UIP), implementation projects for IFRS 9 and IFRS 17 and also set-up costs for a new SAP system. We expect UIP, IFRS 9 and IFRS 17 projects to continue to negatively impact the operating costs of UNIQA in the coming quarters and result in an inflated cost ratio of approx. 26.9% for FY 19e.

Trend of improving combined ratio: In 1Q 19 the combined ratio improved by 0.6%p despite of inflated weather related claims and additional provisioning. We see this trend to continue for the full year, although 2Q might see some weakening as a result of the cost effect.

Consensus still very high: FY 19e PBT consensus for UNIQA remains relatively high considering the guidance of an increase in PBT clean of the sale of the stake Casinos Austria (ca. >EUR 247 mn, gain Casinos stake of EUR 47 mn). Consensus currently stands at EUR 292 mn which would imply flat reported PBT (FY 18: EUR 294 mn).

Favourable valuations of real estate and bonds: The increased real estate and bond valuations could, in our view, positively impact investment income in FY 19. Nevertheless we expect that the low interest rate and slowing macro environment will affect the financial results more negatively in the future and decrease our estimates accordingly.

Strong solvency, however decrease likely: The latest reported solvency ratio as of December 18 stood at 248% (ECR: 205%). A decrease is likely due to the downward shift in the yield curve in 1H 19, however the capitalization should remain strong.

Valuation: Currently, the shares trade at a PER 19e-20e of 12.3- 12.6x representing a 14-17% premium vs. European peers. The PBV multiple of 0.8x is slightly below the peer group average, but UNIQA generates a lower ROE than its peers (ROE 19e-20e of 7% vs. the peer median of 11%). On the other hand, our dividend discount model leads to a fair value of EUR 11.0.

Stofftasche: ein nettes Geschenk, eine schöne Erinnerung, eine brauchbare Sache; Uniqa-HV 20.5.19

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