Milano Assicurazioni Fondiaria SAI

Transcription

1 Milano Assicurazioni Fondiaria SAI Italy - Insurance MI HOLD (prev BUY) TARGT 4.4 FSA ACCUMULAT (prev HOLD) TARGT 22 February 8, 2005 Price : MI 4.50 FSA BCI Index: 1,532 N 35 RUMOURS OF MRGR BTWN MILANO AND FONDIARIA SAI In an interview published in the weekend edition of the business newspaper MF, Fondiaria SAI s CO, Fausto Marchionni, indicates a merger between Fondiaria SAI and its subsidiary Milano Assicurazioni as being probable in the medium term. The tone of the interview, however, leads us to think that this move might take place earlier than we had previously thought (3 years). The merger would make financial sense, since it would shorten the chain of control, accelerating the passage of dividends to Fondiaria SAI shareholders. From the business standpoint, however, cost synergies from a similar move would be very limited since all functions capable of being centralised are already managed at group level. In calculating a merger ratio, we have used the weighted average of different valuation methods. This gives us a target ratio of 4.74 Milano ordinary shares for each Fondiaria SAI ordinary share (3.23 for savings stock) as opposed to a market exchange ratio of 4.40 (3.07 for savings stock). Marchionni indicates feasible alternatives as being (a) buy-back of minorities followed by a merger or (b) an all-paper merger. Option (a) seems to us to be a very remote possibility since, if undertaken at market prices, it would involve a cash outlay of some 750 mn which would affect ratings and would limit management s options in terms of growth via external initiatives (bancassurance JV). As instead regards option (b), the key issue here is dilution of the controlling shareholder Premafin, which currently controls Fondiaria SAI with a 34.5% stake. In any case a similar move should not cause Premafin to descend to less than 30% of Fondiaria s ordinary share capital. Based on our exchange ratios and cancelling treasury stock, this objective would be achieved. We are downgrading our recommendation to HOLD for Milano Assicurazioni (confirming our target price of 4.4 per share) because (1) Milano Assicurazioni s recent performance has driven the stock up to our target price and (2) if Milano Assicurazioni and Fondiaria were to merge, we believe that there would be more risks than opportunities in the calculation of share exchange ratios. Conversely, we are upgrading our rating for Fondiaria SAI to ACCUMULAT with target price confirmed at 22 per share. By shifting to Fondiaria SAI, we shield ourselves by any unpleasant surprises from merger ratios, whilst maintaining exposure to the property & casualty cycle. We also prefer Fondiaria SAI in terms of multiples comparison. At current prices Fondiaria is in fact trading at 1.14x 2005 V with 13.6% RoV, a much cheaper multiple than that of Milano Assicurazioni, which trades at 1.43x V with 16.3% RoV. We instead do not see any upside for Fondiaria SAI savings stock (target price = 14.4), which is currently trading at a discount (24%) justifiable only in the case of high probability of conversion (constantly denied by the company and, in our opinion, highly unlikely). We also underline the fact that, at current prices, yield (3.6%) is no longer particularly appealing. STOCK DATA STOCK DATA Bloomberg Code MI IM MIR IM Bloomberg Code FSA IM FSAR IM 52-week range week range Daily Volumes (mn) 1.18 Daily Volumes 423,000 Giuseppe Mapelli g.mapelli@eurosim.it CAPITALISATION IMPORTANT DISCLOSURS APPAR AT TH BACK OF THIS RPORT CAPITALISATION Market Cap. 2,078 mn Market Cap. 3,181 mn mbedded Value 1,332 mbedded Value 2,450 Free Float 40% Free Float 59% Shares Outstanding (ord) 428 mn Shares Outstanding (ord) 129 mn

2 Milano Assicurazioni - Fondiaria SAI February 8, CO MARCHIONNI POSSIBILISTIC ON FONDIARIA SAI/MILANO ASSICURAZIONI MRGR In an interview published in the weekend edition of the business newspaper MF, Fondiaria SAI s CO, Marchionni, indicates a merger between Fondiaria SAI and its subsidiary Milano Assicurazioni as being probable in the medium term. These statements do not modify opinions previously expressed by management, which has always stated that it views a merger of Milano by incorporation in Fondiaria SAI favourable, particularly from the financial standpoint. The tone of the interview, however, leads us to think that this move might take place earlier than we had previously thought (3 years). The merger would make financial sense, since it would shorten the chain of control, accelerating the passage of dividends to Fondiaria SAI shareholders. From the business standpoint, however, cost synergies from a similar move would be very limited since all functions capable of being centralised (such as, for exam ple, finance and claims handling and adjustment) are already managed at group level. In calculating a swap ratio, we have used the weighted average of different valuation methods. VALUATION MTHODS FSA MI Swap ratio FSAR MIR Swap ratio Weight Average price of last 6 months % 2005 NAVps % 2005 Vps % Premium to V based on RoV 2005 ROV 13.6% 16.3% WACC 8.6% 8.4% Theoretical PV vps Valuation based on Vps and ROV % Our valuation % Current prices % xchange ratio (wei ghted average of methods above) Premium vs. theoretical ratio 5% 0% Target ratio Current prices Premium/Discount vs. current mkt. prices -7.1% -4.9% Source: uromobiliare SIM estimates This gives us a target ratio of 4.74 Milano ordinary shares for each Fondiaria SAI ordinary share (3.23 for savings stock) as opposed to a market exchange ratio of 4.40 (3.07 for savings stock). Marchionni indicates feasible alternatives as being: (a) Buy-back of minorities followed by a merger (b) An all-paper merger. Option (a) seems to us to be a very remote possibility since, if undertaken at market prices, it would involve a cash outlay of over 750 mn. A cash outlay of this magnitude would not only limit management s options in terms of growth via external initiatives (bancassurance JV) but also and above all would put Fondiaria SAI s ratings under pressure. As instead regards option (b), the key issue here is dilution of the controlling shareholder Premafin, which currently controls Fondiaria SAI with a 34.5% stake. In any case a similar move should not cause Premafin to descend to less than 30% of Fondiaria s ordinary share capital. In order to achieve this objective, management could decide to cancel the treasury stock that Fondiaria SAI would control after the merger (7.5% today). The table shows Premafin s pre- and post-merger controlling stake, assuming our swap ratios and cancellation of treasury stock held. IMPORTANT DISCLOSURS APPAR AT TH BACK OF THIS RPORT

3 Milano Assicurazioni - Fondiaria SAI February 8, IMPACT OF A MINORITIS BUY OUT ON PRMAFIN' STAK IN FONDIARIA Pre-Merger Post-Merger Premafin's stake in FSA ordinary capital 35.67% 28.72% Premafin's stake in FSA ordinary capital post cancellation of treasury shares 30.57% FSA's stake in MI ordinary capital 64.97% % Swap ratio - ord Swap ratio - sav Source: uromobiliare SIM estimates Based on our exchange ratios and cancelling treasury stock, this objective would be achieved. CHANG OF RCOMMNDATION We are downgrading our recommendation to HOLD for Milano Assicurazioni (confirming our target price of 4.4 per share) because: 1. Milano Assicurazioni s recent performance has driven the stock up to our target price 2. We no longer think that a merger between Milano Assicurazioni and Fondiaria is such a remote possibility in terms of timing and, if it were to materialise, we believe that there would be more risks than opportunities in the calculation of share exchange ratios. Conversely, we are upgrading our rating for Fondiaria SAI to ACCUMULAT with target price confirmed at 22 per share. By shifting to Fondiaria SAI, we shield ourselves by any unpleasant surprises from merger ratios, whilst maintaining exposure to the property & casualty cycle, which in the light of preliminary Cattolica and Unipol FY04 figures should continue to enjoy good newsflow. At current prices Fondiaria is in fact trading at 1.14x 2005 V with 13.6% RoV, a much cheaper multiple than that of Milano Assicurazioni, which trades at 1.43x V with 16.3% RoV. We instead do not see any upside for Fondiaria SAI savings stock (target price = 14.4), which is currently trading at a discount (24%) justifiable only in the case of high probability of conversion (constantly denied by the company and, in our opinion, highly unlikely). We also underline the fact that, at current prices, yield (3.6%) is no longer particularly appealing. MULTIPL COMPARISON MI FSA MI FSA MI FSA P Ord P Sav P/V Ord P/V Sav ROV 25.2% 45.4% 16.3% 13.6% 14.5% 12.6% Source: uromobiliare SIM estimates IMPORTANT DISCLOSURS APPAR AT TH BACK OF THIS RPORT

4 Milano Assicurazioni - Fondiaria SAI February 8, MILANO ASSICURAZIONI MAIN FIGURS ( mn) 2002 % 2003 % 2004 % 2005 % 2006 % Premiums 2,848 3,029 3,193 3,322 3,495 Change 48% 6% 5% 4% 5% Life Premiums Change 12% 5% 23% 7% 9% New Life Premiums Change -16% 30% 65% 15% 16% New Life P. (AP) Change -51% 19% 41% 12% 13% Uw. Res Change 161% 1% -6% 1% -3% Net Income Change -58% 546% -22% -3% -2% New Bussine Value Change -53% 18% 23% 11% 12% V arnings Change -15% 207% -8% -24% -4% mb. Value 846 1,138 1,332 1,448 1,551 ROV 12% 37% 25% 16% 14% PR SHAR DATA (PS and DPS in cent) ps Change -66% 546% -22% -3% -2% Adj ps Change 514% 14% 18% 7% 1% m. Value Dividend MARKT RATIOS P Adj P Goodwill vs NBV P/M. V Yield 2.4% 6.9% 4.9% 5.1% 5.1% 60% 50% 40% 30% 20% 10% 0% PRMIUM BRAKDOWN 2003 Car Other Fire Health TPL Life TPL Car INVSTMNTS % 2% 7% 12% 78% Mutual funds Other investments Properties quities Bonds Main Holdings OTHR RATIOS Book Value Mkt price Gain (mn ) Generali Loss R Swiss life xpense R Capitalia Combined Ratio Fonsai Uw. Margin Life Mediobanca Uw. Margin N Life Total -74 Source: uromobiliare SIM estimates IMPORTANT DISCLOSURS APPAR AT TH BACK OF THIS RPORT

5 Milano Assicurazioni - Fondiaria SAI February 8, FONDIARIA SAI MAIN FIGURS ( mn) 2002 % 2003 % 2004 % 2005 % 2006 % Premiums 8,572 9,243 10,005 10,394 10,841 Change 8% 8% 8% 4% 4% Life Premiums 2,017 2,420 2,976 3,155 3,313 Change 2% 20% 23% 6% 5% Uw. Res Change n.m. 13% -2% 2% -2% Net Income Change -82% 442% 38% -4% 0% New Business Value Change -29% 20% 72% 6% 5% V arnings Change n.m. -392% 57% -58% 2% mb. Value 1,279 1,733 2,450 2,704 2,956 ROV -11% 39% 45% 14% 13% PR SHAR DATA (PS and DPS in cent) INVSTMNTS 71% 3% 11% 15% Real state quities Bonds Other COMPANY VALUATION ( MN) Total value of P&C business 2,539 ps Total value of Life business 929 Change -82% 442% 38% -4% 0% Free capital -32 Adj ps Company evaluation 3,437 Change 957% 50% 102% -2% 1% Target price ord m. Value Target price sav Dividend Mkt Cap\V 2005 at target price 1.27 Source: uromobiliare SIM estimates MARKT RATIOS P Adj P Goodwill vs NBV P/M. V Yield 2.6% 2.5% 2.3% 2.5% 2.8% OTHR RATIOS Loss R xpense R Combined Ratio Uw. Margin Life Uw. Margin N Life BRAKDOWN OF PRMIUMS (2003) 28% 8% 48% 23% Tot. non car Automobile Compulsory Automobile Accessory risks Total Life Premiums IMPORTANT DISCLOSURS APPAR AT TH BACK OF THIS RPORT

6 Milano Assicurazioni - Fondiaria SAI February 8, DISCLAIMR This publication has been prepared by Giuseppe Mapelli. In the past uromobiliare SIM has published studies on Milano Assicurazioni and Fondiaria SAI. uromobiliare SIM is distributing this publication to some 500 qualified operators and to unqualified operators by mail and electronic communications systems as from April 9, uromobiliare SIM intends to provide continuous coverage of the financial instrument forming the subject of the present publication, with a semiannual frequency and, in any case, with a frequency consistent with the timing of the issuer s periodical financial reporting and of any exceptional event occurring in the issuer s sphere of activity. The information contained in this publication is based on sources believed to be reliable. Although uromobiliare SIM makes every reasonable endeavour to obtain information from sources that it deems to be reliable, it accepts no responsibility or liability as to the completeness, accuracy or exactitude of such information uromobiliare SIM has adopted internal procedures able to assure the independence of its financial analysts and that establish appropriate rules of conduct for them. However, it is pointed out that uromobiliare SIM SpA is an intermediary licensed to provide all investment services as per Italian Legislative Decree no. 58/98. Given this, uromobiliare SIM might hold positions in and execute transactions concerning the financ ial instruments covered by the present publication, or could provide, or wish to provide, investment and/or related services to the issuers of the financial instruments covered by this publication. Consequently, it might have a potential conflict of interest concerning the issuers, financial issuers and transactions forming the subject of the present publication. As on today s date it has been ascertained that, as regards the listed companies covered by the present publication, the Credem group (to which uromobiliare SIM belongs) does not have relationships of control or major shareholdings, either direct or indirect, with/in the same. However, Credem group could provide them with corporate finance services, could have issued financial instruments linked to the issuers stock and could have directors who are members of the issuers corporate bodies. In addition, it is pointed out that, within the constraints of current internal procedures, uromobiliare SIM s directors, employees and/or outside professionals might hold long or short positions in the financial instruments covered by this publication and buy or sell them at any time, both on their own account and that of third parties. The purpose of this publication is merely to provide information that is up to date and as accurate as possible. The publication does not represent to be, nor can it be construed as being, an offer or solicitation to buy, subscribe or sell financial products or instruments, or to execute any operation whatsoever concerning such products or instruments. uromobiliare SIM does not guarantee any specific result as regards the information contained in the present publication, and accepts no responsibility or liability for the outcome of the transactions recommended therein or for the results produced by such transactions. ach and every investment/divestiture decision is the sole responsibility of the subject receiving the advice and recommendations, who is free to decide whether or not to implement them. Therefore, uromobiliare SIM and/or the author of the present publication cannot in any way be held liable for any losses, damage or lower earnings that the subject using the publication might suffer following execution of transactions on the basis of the information and/or recommendations contained therein. The estimates and opinions expressed in the publication may be subject to change without notice MILANO ASSICURAZIONI: MOST RCNT RCOMMNDATIONS: Date Rec. Comment 12 February 2004 HOLD 11 May 2004 HOLD 11 November 2004 BUY change in estimates/valuation FONDIARIA SAI: MOST RCNT RCOMMNDATIONS: Date Rec. Comment 30 January 2003 HOLD 4 April 2003 ACCUMULAT change in estimates/valuation 14 November 2003 ACCUMULAT 6 February 2004 HOLD change in upside/downside potential because of stock performance 27 February 2004 HOLD 1 April 2004 HOLD 8 April 2004 HOLD 13 May 2004 HOLD 10 September 2004 HOLD 17 November 2004 HOLD IMPORTANT DISCLOSURS APPAR AT TH BACK OF THIS RPORT