(5,18 EUR, -3,65%) reported a net profit of € 327m which compares to our forecast € 312m and a consensus at € 345m. The underlying profit before tax (uPBT) stood at € 414m which fell short of our forecast € 465m and the consensus € 465m. When stripping out the € 24m exceptional charge in the UK for customer redress and the € 24m higher provision for longevity in the Netherlands, uPBT was in line with our forecasts.
The US contributed € 347m (+3%) to uPBT, the Netherlands € 81m (-22% due to longevity), the UK € 12m (-57m due to customer redress) and New Markets € 57m. expects the longevity provisions to persist in the coming quarters in the Netherlands whereas it does not exclude additional customer redress provisions in the UK.
Fair value items deteriorated to € -85m whereas realized gains dropped 28% to € 91m. saw impairment reduced by 59% to € -62m.
Other income had on aggregate a very limited impact (€ -3m) and included a € 37m gain from a claims settlement offset by € 20m for the Hungarian bank tax (full year charge taken in 1Q11), a € 8m charge for restructuring in the Netherlands, a € 8m restructuring charge in the UK and a € 6m charge in New Markets, linked to asset management.
Exces capital stood at € 3.7bn of which € 1.3bn at the holding level after repurchase of convertible core capital securities from Dutch State and equity issuance. This leaves € 750m + 50% repurchase premium to be repaid before the end of June. This will be paid with retained earnings, the proceeds of Transamerica Re and dividends upstreamed from the operating entities. The IGD solvency ratio stands at 209%.
New life sales (APE) remained flat (on restated figures) at € 501m demonstrating the effect of the shift from spread business towards fee business. The group’s total embedded value at the end of 2010 stood at € 17.7bn (+7.6%) or € 10.38 per share.
Our View:
Both net profit and underlying profit before tax (corrected for longevity and customer redress charge) were in line with our forecasts whereas our € 7 target prices at a 30% discount to total embedded value.
Conclusion:
We remain Accumulating with an unchanged target at € 7.0.