(Alliance News) - Bank of America expects "flush" Allianz SE to use surplus cash for bolt-on deals which should enhance earnings.
The broker was commenting after the Munich-based insurer sold its US MidCorp and Entertainment insurance businesses to Arch Insurance North America, part of Arch Capital Group Ltd, for USD450 million on Friday.
The division sold is part of Allianz Allianz Global Corporate & Specialty SE, Allianz Group's carrier for large corporate and specialty insurance.
The cash deal includes risk transfer for Allianz, as Arch is assuming around USD2 billion of loss reserves associated with the business.
The cash payment from Arch, together with an estimated USD1.0 billion of Allianz capital supporting the business, is expected to result in USD1.4 billion of total transaction value for Allianz, the firm said in a statement.
BofA noted a disposal of these operations had been discussed in the industry press in autumn 2023, so this does not come as a surprise.
It thinks that the transaction should free up around EUR1 billion of cash for Allianz, which could support mergers & acquisition activity and provide buyback flexibility over the medium term.
"We think that Allianz is flush with cash. It has a EUR1 billion buyback in process, which should run until end [of the first half], and we expect it to focus on bolt-on M&A over the course of 2024." the bank said.
BofA pointed out Allianz has said that it will split its excess cash between buybacks and M&A.
BofA said Allianz has a decent M&A track record, and it thinks that any transactions (cash-funded) should lead to earnings per share upgrades.
The transaction provides further flexibility, and BofA thinks that Allianz would be keen to offset the earnings dilution (about 1% at group level) from the pending disposal.
"We think that this could imply further upside potential for the stock," it said.
BofA reiterated a 'buy' rating and EUR290 price objective.
Shares in Allianz closed down 0.2% at EUR269.00 in Frankfurt on Monday.
By Jeremy Cutler, Alliance News reporter
Comments and questions to newsroom@alliancenews.com
Copyright 2024, Alliance News
IN THE KNOW: Flush Allianz could press the spend button after US sale
(Alliance News) - Bank of America expects "flush" Allianz SE to use surplus cash for bolt-on deals which should enhance earnings.
The broker was commenting after the Munich-based insurer sold its US MidCorp and Entertainment insurance businesses to Arch Insurance North America, part of Arch Capital Group Ltd, for USD450 million on Friday.
The division sold is part of Allianz Allianz Global Corporate & Specialty SE, Allianz Group's carrier for large corporate and specialty insurance.
The cash deal includes risk transfer for Allianz, as Arch is assuming around USD2 billion of loss reserves associated with the business.
The cash payment from Arch, together with an estimated USD1.0 billion of Allianz capital supporting the business, is expected to result in USD1.4 billion of total transaction value for Allianz, the firm said in a statement.
BofA noted a disposal of these operations had been discussed in the industry press in autumn 2023, so this does not come as a surprise.
It thinks that the transaction should free up around EUR1 billion of cash for Allianz, which could support mergers & acquisition activity and provide buyback flexibility over the medium term.
"We think that Allianz is flush with cash. It has a EUR1 billion buyback in process, which should run until end [of the first half], and we expect it to focus on bolt-on M&A over the course of 2024." the bank said.
BofA pointed out Allianz has said that it will split its excess cash between buybacks and M&A.
BofA said Allianz has a decent M&A track record, and it thinks that any transactions (cash-funded) should lead to earnings per share upgrades.
The transaction provides further flexibility, and BofA thinks that Allianz would be keen to offset the earnings dilution (about 1% at group level) from the pending disposal.
"We think that this could imply further upside potential for the stock," it said.
BofA reiterated a 'buy' rating and EUR290 price objective.
Shares in Allianz closed down 0.2% at EUR269.00 in Frankfurt on Monday.
By Jeremy Cutler, Alliance News reporter
Comments and questions to newsroom@alliancenews.com
Copyright 2024, Alliance News