AGEAS: 2Q11 earnings to be hit by Greek impairments

Ageas will report its 2Q11 earnings on 24 August, before market. We expect a net profit of € 37m. Earnings compare unfavourable to 2Q10 when Ageas recorded a large reversal of deferred tax assets following the liquidation of Fortis Brussels S.A.. We also pencilled in € 384m gross impairments on Ageas’s Greek sovereign debt investment which after burden sharing with policyholders (50%), minorities (20%) and taxes, should see a net impact of € 103m.

The insurance activities should report a € 6.1m net profit o/w € -4.2m from Belgium, € -4.9m from the UK, € -0.8m from Continental (46,42 EUR, -5,97%) Europe and € 16.0m from Asia. The life activities should contribute € 12.1m to insurance net profit driven by good commercial activity largely offset by impairments. The non-life activities should contribute € -11.7m as the improvement in combined ratio is most likely more than offset by Greek sovereign debt impairments. Other insurance should contribute € 5.0.

The general account should report a € 30.8m net profit including a € 18m revaluation of the BNP Paribas (33,07 EUR, -3,33%) call, and a € -23m revaluation of the Relative Performance Notes. The decline in interest rates in 2Q11 probable also resulted in a positive revaluation of Royal Park Investments (€ 31.9m) as part of the variable rate assets were swapped into fixed rate and the portfolio has a positive carry.

2Q11 gross inflows are expected to have risen by 15.5% to € 5.35bn driven by the combined effect of rate rises in non-life, good commercial activity and changes in the scope.
Shareholders’ equity at 30 June is estimated at € 7.5bn, virtually flat compared to 1Q11.

Conclusion:
Ageas’s valuation remains undemanding but the strong decline in market valuations (EV multiples and BNP Paribas share at year low) prompt us to lower our target price to € 2.85. We remain Buying the share.