Generali Earnings: Good Overall; Misses in Property and Casualty, Other; Shares Undervalued

Generali has reported net profit for the first six months of EUR 2.05 billion. That is versus our full-year forecast of EUR 3.78 billion, but a bit below the EUR 2.09 billion estimated by company-compiled consensus. The result, so far this year, provides shareholders with a 7% return on equity. The business has delivered a positive performance in life and asset management. Net flows are good within protection and unit-linked, though outflows remain in savings and annuities. The asset and wealth management division has performed well because of the consolidation of Conning Holdings. However, the good performance has been offset by financial results that are worse in property and casualty, and the holding and other business' expenses that are worse than consensus. The operating profit of property and casualty has primarily been hit by higher unwinding of the discount on its liabilities. The holding and other business has been hit by higher long-term technology and incentive plan expenses. Despite all this, we think the results are reasonable and maintain our EUR 25.05 per-share fair value estimate. We consider shares cheap trading in 4-star territory.