NNGPF - NN Group: Financial Flexibility And A Solid Balance Sheet

2023-04-04 11:47:27 ET

Summary

• No exposure to Credit Suisse AT1 bonds and minimal investments in banks' AT1 bonds.
• Dividend up by 12% and a buyback of €250 million in place.
• Ongoing strong cash flow generation with a solid Solvency II ratio makes NN Group a buy. Despite that, we prefer Aegon.

Here at the Lab, last week we analyzed the EU banking environment ( ISP , BNP , Crédit Agricole , UniCredit, and SocGen ) and started to investigate the EU insurance sector ( AXA and Aegon ). Before analyzing NN Group NV ([[NNGPF]], [[NNGRY]]), it is important to review the latest macro development. Since our latest buy rating target, which was released in early January 2023, the company is down by more than 15% (underperforming the S&P 500 as well as the STOXX 600 insurance index).

The banking crisis that started with SVB's bankruptcy and continued with the CS's rescue and Deutsche Bank CDS news, was quickly recovered. We should be grateful to Central Banks and Governments' intervention who have rapidly managed to convince the markets that we are not on the verge of a season of bank failures as happened in 2008. For this reason, here at the Lab, we remain constructive on the European insurance industry as companies have strong balance sheets. In detail, exposure to Additional Tier 1 bonds (the one that Credit Suisse had to write down to zero as part of its merger with UBS) is generally low and European insurers appear to have most of their exposure in senior bank bonds. In addition, at the aggregate level, EU insurance players have a Solvency II ratio of 217% and an attractive free cash flow yield of around 11%. However, there are two risks to consider for insurers that are both related to the credit risk: 1) liquid BBB bonds and 2) illiquid assets.

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