ALV

Allianz SE

St Andrews Investment Society 14.11.2016

Allianz SE Globally operating insurance company with stable and growing business prospects.

Company Overview Allianz SE is a German-based insurance company, with more than 85 million clients in over 70 countries. It has established itself as one of the leading international insurance companies, in terms of both market share and profitability. It provides a wide range of global services which include: Property-Casualty, Life/Health, Asset Management and Corporate. Even during times of volatile markets and low interest rates, Allianz continues to generate steadily growing returns. Moreover, a highly-experienced management team lead Allianz, with each of them having a strong working background in the insurance business.

ALV Price (14.11.2016) Market Cap (bn) EV (bn)

€152.30 €68.92 €102.87

Financials Price Target Investment Horizon

€156.50 12m

24m performance: 150 100 50 0

Investment Rationale Allianz SE is a well-established company with a widely diversified, stable business which also possess healthy growth prospects. It is not only one of the largest insurance companies and financial services group worldwide, being present in over 70 countries, but is also one of the most profitable. Besides the geographic diversification, its operation profits of the core businesses: Property-Casualty, Life/Health and Asset Management were well balanced among non-life (48%), life & health (32%) and asset management (20%). Moreover, Allianz SE holds a significant number of operational and strategic stakes in companies in Germany, Europe and the rest of the world. This business’ revenue and market diversification helps to generate a strong and stable level of profitability, steadily providing growth and off-setting the current pressure of low interest rates on the German life business.

Market Data: 52- Week Range Shares Out. (bn) EV/EBITDA EV/OpFCF P/E Div./Yield

€118.4-€169.9 0.457 9.56x 5.32x 10.53x €7.30/4.46%

Financial Data: Revenue (bn) Revenue growth EBITDA (bn) EBITDA growth EBITDA margin

€125.19 2.40 % €12.09 4.61 % 9.66 %

Current plans of Allianz SE indicate that the company can adequately react to market changes. Leading up to 2018, Allianz will significantly digitalize its Leverage: Net Debt (bn) €15.2 business by designing products in a simple digital manner in order to reduce Net Debt/EBITDA 1.257x complexity and increase the levels of digital communication with its EBITDA/Interest 39.77x customers. Moreover, it plans to invest into digital business model innovations, Fintechs, and provide scale to these rapidly under the influence of Allianz. In addition, they focus on new digital products like providing protection against cyber-risk and solutions for the upcoming importance of sharing economy, such as car sharing. Moreover, Allianz works towards both cost reduction and increasing innovation by aiming for paperless communication in over 50% of cases, extending the digital offering of retail products to close to 100% and reinvest recurring productivity gains heavily into the customer centric digital transformation.

Page 1 of 4

ALV

Allianz SE

Even though the share has substantially risen during early November 2016, it is still undervalued in comparison to the majority of Analyst reports and estimates. Almost 70% are on Buy rating and over 20% on Neutral, with target price highs of €180 with a €156.3 target on average. Less than 10% expect the stock to underperform,

Market Position Allianz SE is one the leading insurance companies worldwide, with more than 85 million clients in over 70 countries. It is the largest Property and Casualty (P/C) insurer, the largest credit insurer and the largest in the Assistance business worldwide. It ranks third worldwide in Life/Health Insurance, Asset management and Industrial Insurance. In Europe, it is the second largest insurer by assets under management ($928 billion), led by AXA SE, and has the fourth highest market capitalization worldwide ($68 billion). With a ROE of 9.44%, a Net profit margin of 6.63% and an Operating margin of 11.60% they are more profitable than their largest European competitors AXA SE (ROE: 8.31%; Net profit margin: 5.66%; Operating margin: 7.72%), Assicurazioni Generali SpA (ROE: 7.75 %; Net profit margin: 2.44%; Operating margin: 5.57%) and the Zurich Insurance Group AG (ROE: 4.40%; Net profit margin: 2.89%; Operating margin: 5.91%). Furthermore, while the revenues of AXA SE had fallen by 4.1%, Allianz SE grew by 8.1%.

Financial Position As indicated by the figures below, it is clear that Allianz SE has grown revenues sufficiently over recent years. However, in comparison with 2013, all 4 margins (EBITDA, EBIT, OPFCF, Net income) show a decline and can be attributable to the risks Allianz SE are facing in the insurance industry, coupled with the low interest rate cutting into profits. On November 11th 2016, Allianz presented their Q3 results to investors and reported an 18% increase in net income (compared with Q3 2015) and revenues increasing by 0.5%. Nevertheless, the revenues of the first 9 months fell by roughly 3% and now amount to €92.4 bn. In conclusion: Allianz SE has a strong financial position with steady revenues and good profit margins.

Allianz - Financial Summary ($k, FYE Dec)

FY2013A

FY2014A

FY2015A

13A-15A CAGR

Revenue

€ 110.773

€ 122.253

€ 125.190

6.31%

4.13%

10.36%

2.40%

€ 11.174

€ 11.561

€ 12.094

10.09%

9.46%

9.66%

€ 10.066

€ 10.402

€ 10.735

Margin

9.09%

8.51%

8.57%

OpFCF

€ 21.430

€ 29.970

€ 19.330

Margin

19.35%

24.51%

15.44%

€ 6.343

€ 6.603

€ 6.987

5.73%

5.40%

5.58%

Growth EBITDA Margin EBIT

Net income Margin

4.04% 3.27% -5.03% 4.95%

Page 2 of 4

ALV

Allianz SE

Growth Prospects & Risks Growth Prospects: Allianz is Europe’s biggest insurance company. Its core markets are Italy, Germany, France and the USA. It is these markets where we expect rising real incomes to help the market for both insurance and asset management. The market for insurance is expected to increase based on the idea of loss aversion / prospect theory i.e. when people get richer, they tend to buy more, which means that they have more to lose and thus more to insure. Many people also buy private healthcare insurance when their private wealth level rises. Further, the market for asset management tends to grow with rising real incomes as people have more income available for investment. We also think that Allianz is well place for the upcoming cyber security insurance market. Cyber security has been a massive problem over the last few years, with countries such as China and Russia being accused of hacking institutions in both America and Europe. We expect these problems to continue and for cyber security insurance demand to increase as a result. We consider Allianz to be undervalued, due to its correlation with the current cyclical nature of the stock market and short-term hits to its profitability. Its P/E ratio of approximately 11 has factored in the formerly loss making South Korean division (which they sold off) and adverse weather effects which we believe to be temporary. Risks: In recent times the biggest risks have been political and weather related. Most recent political risks include Brexit & UK Financial Passporting, the consequences of the US Presidential Election and the rise of populism revival in Europe. However, we believe that Brexit is not a major concern as Allianz’s largest markets are outside the UK. The effects of the US Presidential election are a bit more uncertain, however, we do not believe that Donald Trump will have a directly significant impact on Allianz – his rhetoric may even encourage cyber security and other types of insurance. Moreover, climate change continues to affect Allianz’s property and causality profit margins and has been a serious problem for the last few decades with the higher frequency of natural disasters being a problem for this business segment. In recent months, there has been an El Niño / La Niña weather cycle, which has caused widespread flooding in Europe, particularly in France. We believe this to be temporary, but climate change is a risk going forward. Other problems include low interest rates which effects the Asset Management division and the possibility of (digital) creative destruction to the entire insurance industry. However, the well diversified business of Allianz SE in general should help to retain stable revenues and profitability.

Management Structure & Integrity         

Oliver Bäte (CEO; May 2015)  worked for McKinsey after graduation and joined Allianz in 2008 Sergio Balbinot (Insurance Western & Southern Europe, Middle East, Africa, India; January 2015) Jacqueline Hunt (Asset Management, US Life Insurance; March 2016) Helga Jung (Insurance Iberia & Latin America, Legal & Compliance, Mergers & Acquisitions; January 2012) Christof Mascher (COO; September 2009) Axel Theis (Global Insurance Lines, Anglo Markets, Russia, ESG; January 2015) Dieter Wemmer (CFO; January 2012) Werner Zedelius (Insurance German Speaking Countries and Central & Eastern Europe; January 2002) Maximilian Zimmerer (Investments, Insurance Asia Pacific; June 2012)  replaced by Günther Thallinger as of January 1st, 2017

The entire board of management has both a profound experience in the insurance sector and a history within Allianz and is therefore well suited for leading the company to further success and sustainable growth.

Page 3 of 4

ALV

Allianz SE

Integrity: Allianz is reducing its use of natural resources in both business and supply chain in order to reduce cost and environmental impact. In addition, they perform Social Responsibility Reporting and CSR is managed on a board level.

Shareholder Structure Free Floating

87,91%

BlackRock. Inc.

6,06%

UBS Group AG

3,04%

Harris Associates L.P.

2,99%

The Shareholder Structure of Allianz SE is similar to that of typical German DAX companies, BlackRock holds a single-digit investment. The stake of UBS Group AG (global financial services company) and Harris Associates L.P. (investment company) exemplify Allianz’s standing as an established company in the finance industry.

Page 4 of 4