IC Market Espresso 5 Sep 2023

S&P Global Affirms ‘A’ Ratings on Sava Re and Zavoravalnica Sava

Sava Re announced that S&P Global affirmed its ‘A’ rating on Sava Re and Zavoravalnica Sava, with a stable outlook.

S&P Global Ratings (the Agency) did its regular annual rating review on Sava Re and Zavoravalnica Sava, and affirmed the ‘A’ (strong) insurer financial strength rating, with a stable outlook.

According to the Agency, the key strengths of the Sava Insurance Group are its established and strong competitive position in the Slovenian market, its solid capitalization at the “AAA” level, and its prudent underwriting combined with conservative reinsurance protection and a prudent investment strategy, which underpins solid business performance.

Relating to the recent floods in Slovenia, S&P considers the impact will be manageable for the Sava Insurance Group, with claims remaining inside the Group’s risk tolerances. It considers that these claims will not have a material impact on the Group’s capital position. 2023 profit will be lower, but the impact on claims will be contained by the Group’s comprehensive reinsurance protection. S&P is confident that the Group will maintain its strong position in Slovenia and continue to gradually expand its footprint in its target markets in the Adriatic region and in the international reinsurance markets.

The stable medium-term outlook reflects the Agency’s expectation that the Group’s management will continue to pursue its strategy of operating performance and profitable growth, while further diversifying premiums and strengthening its income streams, and that it will maintain a strong balance sheet over the next two years despite the increased natural catastrophe claims and moderating macroeconomic conditions.

Delving a bit further into the report, S&P expects that insurance revenue growth will jump to 10-15% in 2023 before normalizing at 4-7%. The higher growth will be on the back of Sava’s non-life business, mainly in Slovenia where, combined with its solid underwriting controls, the Company continues to actively adjust prices to reflect higher inflation. Higher prices in international reinsurance should also provide a benefit in 2023, with higher costs being passed through with price increases in the non-life property lines. After 2023, S&P expects further price increases due to still relatively high inflation and further property insurance price increases.

The impact of the natural disasters will mean that the ROE should amount to 7% in 2023, with recovery in 2024-2025. S&P also expects that the ongoing Slovenian health reforms will not impact the Group because it does not write any of the impacted health insurance business. Furthermore, the Group’s net combined ratio should increase in 2023, with an improved investment result providing support to the overall performance in 2023 and beyond. Net income should amount to app. EUR 40m this year, comparable with international peers in recent years.

Taking a more detailed look at the outlook, the stable outlook on Sava’s core op. entities reflects S&P’s expectation that the Group’s management will continue to implement its strategy of solid op. performance and profitable growth, with further diversifying premiums and solidifying its income streams. Despite the increased natural catastrophe claims and moderating macroeconomic conditions, S&P expects Sava to maintain a strong balance sheet with at least very strong capitalization and strong and stable earnings over the next 2 years.

S&P also commented on the downside and upside scenarios.

Starting with the downside scenario, S&P could lower the rating in the next two years if Sava’s competitive position is weakened because of significantly eroded volumes or prolonged loss of profitability, triggered for example by external conditions that also derailed macroeconomic development in Slovenia.

On the other hand, the upside scenario is unlikely in the next two years. An upgrade would be contingent on the Group further improving its competitive position, for example, if sustainable economic growth drives Slovenia’s GDP per capita income further towards the Eurozone average and strengthens its prospects for profitable domestic growth. S&P does not see this happening in the next 2 years.

The full report can be accessed here.

One United Properties Proposes RON 0.01 DPS

At the share price before the announcement, this would amount to a DY of 1.1%. The ex-date is proposed for 15 January 2024.

Yesterday, One’s Board of Directors called for the GSM meeting, which will be held on 9 October 2023 (first call), or 10 October 2023 (second call). In the call, a proposal for the distribution of profit is also included, in the amount of RON 37.9m. This is to be paid out from the H1 2023 consolidated net profit of RON 287.9m, which would imply a payout ratio of 13%. On a per-share basis, this would mean that the gross dividend amounts to RON 0.01 DPS, with a DY of 1.08%.

As a reminder, ONE maintains a policy of paying out up to 35% of distributable net profit, in 2 tranches each year. In 2023, the first tranche was proposed back in March, and approved in April, and the 2nd one which was proposed in yesterday’s OGSM notice, and if approved, will be paid out in January 2024. Because of this system, the 2023 dividend might seem low right now, but overall after the 2nd tranche is announced, we expect it to be higher. In fact, according to our estimates, we expect the total dividend to be paid from 2023 profit at RON 0.026, which at the current price would amount to a DY of 2.83%.

The ex-date for the dividend proposal is set for 15 January 2024, while the payment date is set for 31 January 2024. Below we included the historical overview of the Company’s dividends per share and dividend yields.

One United Properties dividends per share (RON) and dividend yields (%) (2020 – 2023, RON)*

Source: One United Properties, InterCapital Research

*Dividends per share and dividend yields are presented in the year from which the profit was distributed