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Allianz and ING: Value in European Financials

07/29/2016 10:00 am EST


John Buckingham

Editor, The Prudent Speculator

For long-term investors, we think there are strong reasons to be optimistic about the prospects for our stocks, suggests value investor John Buckingham. Here, the editor of The Prudent Speculator reviews two of his recommendations, both in the global financial services sector.

Allianz SE (AZSEY) is a 126-year-old, Germany-based global insurer and financial services firm with more than 85 million customers in 70 countries.

Allianz is the world’s largest property and casualty insurer, and its Global Investors arm -- including bond manager Pimco -- is one of the top 5 active asset managers worldwide with nearly 2 trillion euros of assets under management.

CEO Oliver Baete noted that the company is considering a share buyback to accompany the 4.2% net dividend yield, as AZSEY’s growth trajectory is within the company’s target and the Solvency II capital requirements are sufficiently covered.

However, management is still treading carefully given the geopolitical events in Europe over the last few weeks.

While investors have punished the stock this year, we think the high quality shares are very inexpensive, trading for less than 9 times estimated earnings and 1.1 times tangible book value.

ING Groep NV (ING) is a Netherlands-based financial institution. Its shares have been hit hard this year. We believe the plunge has been overdone, providing an appealing long-term entry point.

Following the sale of its remaining stakes in its insurance operations, ING now operates as a pure bank with a European retail focus and maintains a global commercial banking business.

We like the divestment of its insurance businesses, allowing management to focus on growing and improving its well-established retail and commercial banks.

We also think the firm has ample opportunity to move its offerings into higher growth neighboring markets. Additionally, we like that ING has solid capital levels, including a Basel Tier 1 ratio in excess of 12.5%.

ING shares currently trade for less than 9 times forward earnings estimates and below tangible book value. The shares also offer a net dividend yield north of 7%, with management aiming to pay a progressive dividend over time.

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By John Buckingham, Editor of The Prudent Speculator

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