Free Cash Flow Estimation4
Cost of Equity, Cost of Debt, WACC Calculation5
Discounted Cash Flows and Company Evaluation5
Appendix 1: Historical Free Cash Flow Analysis7
Appendix 2: Historical Free Cash Flow Analysis8
Appendix 3: Growth Estimations9
Appendix 4: 2012 Operating Expense Growth Estimation10
Appendix 5: Income Taxes11
Working Capital, Depreciation and Amortization, Capital Expenditure Estimation11
Appendix 6 Part II: Estimations Summary12
Appendix 7: Free Cash Flow Estimation Analysis (in mln. €)13
Appendix 8: WACC Calculation14
Appendix 9: Equity Evaluation16
Appendix 10: Sensitivity Analysis17
This report discusses the possible profitability of investment in shares of the Allianz Group SE. Our analysis, based on discounted cash flows and weighted average cost of capital, suggests that under the assumption of stable economic growth, no drastic escalation of the European sovereign debt crisis and industry shocks due to natural disaster like the hurricane Sandy, the current share price of the company is currently below its estimated value and thus a promising investment opportunity. If the company manages to keep its stable growth in the last quarter of the year, an investment is recommended after a careful analysis of the market changes and the general effect of hurricane-like cataclysms on the industry. Analysis Model
This report includes estimation of the current share price of the Allianz Group SE, based on the Discounted Cash Flow valuation model, including an estimation for the future growth rate of the company, weighted average cost of capital and equity value estimation, compared to the current market capitalization of the company. Company Overview
The Allianz Group is a German multinational financial services company, based in Munich, Germany. Active primarily in the insurance market, the company has close to 180.000 employees and 78 million clients worldwide and offers a variety of Life, Health, Property and Casualty insurance products to private and corporate customers. In addition, since 2008 the company owns a 14% controlling stake in the Commerzbank Group. ING, the ANG Group, the AXA Group and the Generali Group are among the biggest competitors of Allianz in the insurance industry.
Similarly to other companies from the industry, adapting to the aftermath of the global economic crisis, Allianz is ready to invest in developing markets: In fact, as presented in Appendix 3, 49,7% of company’s clients are located in so-called emerging markets, featuring estimated growth of 5.5%. (In comparison, mature market like the Eurozone offer an expected growth of only 0.5%.) Industry Outlook
Besides the economic slowdown in the last couple of years there are a series of threats and challenges that need to be considered carefully before an investment decision is done.
Firstly, catastrophe-related losses rose to over USD 100bn in 2011, twice the 2010 level. Various cataclysmic occasions, like the hurricane Sandy that hit the USA at the end of October 2012 often create shocks in the industry, lowering profits. Major floods in New Zealand, Japanese earthquakes and tsunamis and storms in Europe are only a few of the natural disasters threatening the economic progress of insurance companies like Allianz. Moreover, the sovereign debt crisis in Europe, where almost 50% of the company’s clients reside, creates additional issues with the introduction of the 1% interest rate and global premium falls in the Life Insurance sector create considerable amounts of risks for the future stable growth of the business.
The issues listed above will most definitely affect the growth of the company in the short...