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05/10/17
ASR plans to raise €300m Tier-1 restricted bonds to pre-finance 2019 bonds; Pro-forma 3ppts uplift on S-II ratio
Neutral
Price: €34.05
04 Oct 2017
Price Target: €28.30
PT End Date: 31 Dec 2018
ASR has announced this morning that it plans to raise €300m Restricted Tier-1 capital to pre-finance its perpetual bonds (c.€210m) with a call-date in Sep/Oct 2019. We believe that this capital raise will improve its Solvency II ratio by ~9ppts from the 194% at 1H17 but will be reduced by ~6ppts in 2019 at the time of repayment. Hence, the net pro-forma impact is around 6ppts to its Solvency II ratio, we estimate.
These bonds will have a coupon rate of 5-6%, in our view, and hence reduce the net profit by c.2% for 2018e and 2019e before reaching back to the current level post the refinancing.
We note that ASR had €1.2bn of additional Tier 1 debt capacity at 1H17 and hence this decision is tactical from a capital management perspective, in our view, and shows the management’s pro-activeness. Overall, we see this as slight positive as it strengthens its capital position even further.
Investment Thesis
ASR Group is a Dutch insurer with c.70% of earnings coming from life insurance and 27% from non-life. Most of the life segment is in run-off, so our key focus is on stock and flow of capital under Solvency II basis. Following additional disclosure around asset spread assumptions for capital generation calculation at 1H16 results, we believe that ASR uses a conservative approach. We have a Neutral rating for ASR as we see better opportunity at Ageas within Benelux life insurers.
Valuation
We value ASR shares at a SoTP based Dec-18 PT of €28.3 per share. Within this, we value:
· The life and the non-life businesses at 11x PE (using 9.0% WACC)
· Bank and asset management and Distribution and services businesses at 12.5x PE
· We deduct debt at 1x face value and subtract €0.2bn for litigation risk
ASR plans to raise €300m Tier-1 restricted bonds to pre-finance 2019 bonds; Pro-forma 3ppts uplift on S-II ratio
Neutral
Price: €34.05
04 Oct 2017
Price Target: €28.30
PT End Date: 31 Dec 2018
ASR has announced this morning that it plans to raise €300m Restricted Tier-1 capital to pre-finance its perpetual bonds (c.€210m) with a call-date in Sep/Oct 2019. We believe that this capital raise will improve its Solvency II ratio by ~9ppts from the 194% at 1H17 but will be reduced by ~6ppts in 2019 at the time of repayment. Hence, the net pro-forma impact is around 6ppts to its Solvency II ratio, we estimate.
These bonds will have a coupon rate of 5-6%, in our view, and hence reduce the net profit by c.2% for 2018e and 2019e before reaching back to the current level post the refinancing.
We note that ASR had €1.2bn of additional Tier 1 debt capacity at 1H17 and hence this decision is tactical from a capital management perspective, in our view, and shows the management’s pro-activeness. Overall, we see this as slight positive as it strengthens its capital position even further.
Investment Thesis
ASR Group is a Dutch insurer with c.70% of earnings coming from life insurance and 27% from non-life. Most of the life segment is in run-off, so our key focus is on stock and flow of capital under Solvency II basis. Following additional disclosure around asset spread assumptions for capital generation calculation at 1H16 results, we believe that ASR uses a conservative approach. We have a Neutral rating for ASR as we see better opportunity at Ageas within Benelux life insurers.
Valuation
We value ASR shares at a SoTP based Dec-18 PT of €28.3 per share. Within this, we value:
· The life and the non-life businesses at 11x PE (using 9.0% WACC)
· Bank and asset management and Distribution and services businesses at 12.5x PE
· We deduct debt at 1x face value and subtract €0.2bn for litigation risk
