1. Executive Summary 3
2. Analysis Model 3
3. Company Overview 3
4. Industry Outlook 3
5. Company Evaluation 4
Free Cash Flow Estimation 4
Cost of Equity, Cost of Debt, WACC Calculation 5
Discounted Cash Flows and Company Evaluation 5
6. Sensitivity Analysis 6
7. Final Recommendations 6
8. Appendix 7
Appendix 1: Historical Free Cash Flow Analysis 7
Appendix 2: Historical Free Cash Flow Analysis 8
Appendix 3: Growth Estimations 9
Appendix 4: 2012 Operating Expense Growth Estimation 10
Appendix 5: Income Taxes 11
Appendix 6 11
Working Capital, Depreciation and Amortization, Capital Expenditure Estimation 11
Appendix 6 Part II: ...view middle of the document...
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%.)
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 term. On the positive side, while 2011 was one of the worst years for the insurance industry, the Allianz Group managed to commit a strong 6% growth in its total income: markets in Eastern Europe and the US are growing, emerging markets deliver strong results and so far, the company proves its ability to progress despite the emerging difficulties.
Free Cash Flow Estimation
The first part of the company evaluation was focused on the historical performance of the company for the last 5 years and projection of its free cash flow in the future. As presented in Appendix 1, in those years the Allianz Group faced fluctuations in its total income but managed to keep its business profitable, with total expenses averaging around 93% of its Total Income. In terms of growth, the company is expected to grow at a slower pace, 2,4% in 2012 due to the variety of cataclysms faced throughout the year. In coming years however, the strong Real GDP growth of 5,5% in the...