Source: Investing Published 22/10/2024, 10:40
On Tuesday, UBS raised its rating on Aegon NV, listed on Euronext Amsterdam and the New York Stock Exchange, from neutral to buy. The firm set a new target price for the insurer at €6.55, slightly below the previous target of €6.65.
UBS expects Aegon to maintain its share buyback strategy going forward. The firm expects frequent share buybacks starting in 2025, worth around €300 million per year. The move is expected to result in a dividend yield of 9% for FY25 for Aegon.
which is above the sector average but in line with other Dutch insurers.
In addition to the long-term outlook, UBS sees an opportunity for Aegon to announce a special share buyback of around €100 million, equivalent to around 1% of the company’s market capitalization.
at its Q3 2024 earnings presentation on November 15. This buyback potential is based on the expectation that Aegon will have completed its current €200 million share buyback program by then.
UBS also addressed the possibility that Aegon could sell its stake in ASR, another insurance company. The analyst firm does not see the share buyback resulting from such a sale as adding value.
However, UBS still sees potential for further upside to its base case if Aegon successfully de-risks its non-core assets in the United States. The firm’s analysis suggests that such a de-risking could further strengthen Aegon’s financial position and stock performance. In other recent news, Aegon NV has been in the spotlight after releasing its financial results for the first half of 2024. Despite market concerns about mortality risks, Aegon has revised its operating profit forecast for the full fiscal year 2024, now expecting an operating profit of between €800 million and €900 million.
This is up from the previous estimate of €700 million to €800 million. Berenberg maintained its Buy rating on Aegon, despite recent earnings volatility.
The company has also responded to rising mortality costs by boosting its reserves, setting aside an additional $400 million for future mortality risks in the US. This strategic move is expected to reduce mortality costs by $50 million per half-year under IFRS operating profit.
Amid these developments, Aegon reported a mixed financial picture during its earnings call. The company saw its operating result decline by 8% year-on-year, mainly due to unfavorable mortality claims in the US and a €430 million charge for non-operating items. However, Aegon’s solvency ratios have improved, and it remains on track to meet its 2025 financial targets.
InvestingPro Insights
Recent data from InvestingPro adds depth to UBS’s bullish stance on Aegon NV. The company has a market capitalization of $10.32 billion, with a dividend yield of 4.73% according to the latest data. This attractive yield is complemented by Aegon’s continued dividend growth, with an impressive 37.55% increase over the past 12 months.
InvestingPro’s advice highlights Aegon’s commitment to shareholder returns, in line with UBS’s expectations. The company has been buying back shares aggressively and has raised its dividend for 4 consecutive years. This trend supports UBS’s expectations of continued share buybacks and the potential for private buybacks. While Aegon has not been profitable over the past 12 months.
with negative operating income of $249.6 million, analysts expect the company to return to profitability this year. This optimism is reflected in the stock’s performance, with a strong total return of 43.46% over the past year.
