Summary

  • Mapfre Group (Mapfre) is Spanish insurer which is present in 44 countries through 216 companies. It is the largest non – life insurance company in Latin America.
  • Dividend yield of 6.9% is one of the highest in Spanish market. The return to pre – Covid dividend level, EUR 0.145 per share, would make dividend yield even higher at 8%. However the payout ratio is high at present.
  • Over 2020 revenue is down 10.7% but first half of 2021 reveals the return to revenue growth in both life and non – life insurance.
  • Mapfre is financially sound with a low level of debt and a high level of Solvency II ratio.
  • The stock has a potential to provide compound annual return on investment of 11% by our stock evaluation method.
Dividend    Revenue    Profitability    Financial Strength    Investment Case

Mapfre (MAP) provides insurance and reinsurance solutions to 28.5 M individuals and almost 1 M companies. It has own sales networks and over 82K intermediaries worldwide. The company’s main markets are Spain, Brazil and the US.

Mapfre has the following divisions:

Insurance units in the following geographies:

  • Iberia – 30% of total premiums of the Group. Encompasses Mapfre Spain and Mapfre Life.
  • LatAm – 27% of total premiums. Comprises Brazil, Latam North and LAtam South.
  • International – 16% of premiums. Consists of the North America and Eurasia regional areas.

and the following global units:

  • Reinsurance and Global Risks – 25% of premiums. Global reinsurer Mapfre Re provides life and non – life reinsurance services and includes Global Risks unit.
  • Assistance – 3% of premiums. Specializes in travel assistance and roadside assistance.
  • Holding and others.

Mapfre’s main lines of business are:

  • Life insurance – provides protection in the case of death or other adverse events as well as savings products for retirement or other life goals.
  • Automobile insurance – offers range from third – party liabilities to an all – risk policy and covers all types of vehicles.
  • General P&C – offers coverage within wide range of products for commerce, small and medium – sized companies. The company has a Business Unit specialized in high industrial risks.
  • Health and Accident – mostly a compliment to public health. Covers medical expenses and provides access to private medical services in the event of illness or accident.

The company develops Digital Business to attract and retain digital clients through four lines of business: Mapfre.com, Verti, Insure&Co and Savia.

Mapfre has an agreement with Banco Santander to distribute non – life insurance in Portugal and an exclusive partnership contract with Bankia. However the company is exiting agreement with Bankia due to the merger of Caixabank and Bankia.

  Dividend

Dividend Dividend Yield 5Y Growth PayOut Ratio Ex-Dividend Date
EUR 0.125 per share 6.9% -0.8% per year 73.5% 2021 December

In 2020 dividend has been paid in two installments: EUR 0.05 and final EUR 0.075. Despite the pandemic related challenges, the dividend is only 2 cents less than that of the previous year. Payout ratio of 73.5% is relatively high. However EPS in first half of 2021 is 34.5% higher than in the same period of 2020. So, dividend coverage by earnings should not cause concern.

In pre – Covid years (2016 – 2019) the company paid stable dividend of EUR 0.145 each year. The management intends to come back to that dividend as soon as reasonably possible. In our projections made below we assume that the company restores dividend to EUR 0.145 and keeps it the same in the future years.

  Revenue

Premium income 5Y Growth Premium growth over 2020 Company Outlook 2021
EUR 20.5 B

 

 

 

 

 

 

-0.8% p. a.

 

 

 

 

 

 

Total premiums              -11%

By divisions:

Iberia                                -9%

Latam                              -19%

International                   -11%

Reins and Global Risks +2%

Assistance                      -28%

No certain estimates are provided by the management due to the crisis – related uncertainties.

 

 

 

 

The company had both lower premium income and lower financial income in the pandemic hit markets. Insurance and accepted reinsurance premiums amounted to EUR 20.5 B, a decrease of 11% due to the pandemic and depreciation of main currencies. Non – Life insurance premiums are down by 8% while Life insurance premiums by 20%. Financial income was 26% lower. Revenue was hit by the lockdowns due to Covid – 19 and strong depreciation of main currencies in countries where the company operates. At constant exchange rates and eliminating one – offs premiums it would have only fallen by 2.2%. The Assistance business took a hit from the pandemic as it is closely connected to travel and tourism. It incurred losses for the year as premium income was 28% lower.

Premium income returned to growth in second quarter of 2021. For 6 months of 2021 revenue is up 6%. By business unit performance has been as follows.

In Spain Mapfre outperformed market in premium growth.

It could reasonably be expected that the company returns to pre – Covid revenue level and continues with revenue growth in the years to come.

  Profitability

Profit 5Y Growth Net Profit Margin ROE
EPS EUR 0.17

Net Profit EUR 0.53 B

-6% p. a.

 

4%

 

9.6%

 

Over the last 5 years Mapfre’s earnings are down 6% per year. In 2020 EPS is down from EUR 0.2 in 2019 to EUR 0.17. Year – on – year change in net profit by business units was as follows:

Iberia -9%
Latam  +7%
International +15%
Reins and Global Risks -71%
Assistance +77%

Net profit in reinsurance is down 98% while premiums are up 2%. Net profit is lower because of the earthquakes in Puerto Rico, Covid – related claims and negative development of large claims. The earthquakes that hit Puerto Rico in January and May costed the company EUR 93.6 M. Insurance claims reported were down significantly in Auto and Health and higher in Life protection and Burial. Reinsurance business also suffered losses of EUR 113 M from the pandemic. The largest contributor to profits is Mapfre Spain.

The non – life loss ratio decreased from 69% to 66% indicating improved efficiency of underwriting process within the company. But the non – life net expense ratio is slightly up to 29%.

To support businesses during the pandemic the company applied discounts for SMEs and self – employed for accumulated amount of EUR 55.5 M.

The company saw a strong rebound of 34.5% in earnings in first half of 2021.

Mapfre does not provide any estimate of business volumes and earnings due to the crisis – related uncertainties. Over the last 5 years period earnings per share averaged about EUR 0.2. We assume roughly the same level of EPS to be achieved in the coming years.

  Financial Strength

Company Capital Structure

In EUR B

Year 2019 2020 1HY
Equity 8.854 8.536 8.5057
Debt 2.974 2.994 3.07
Debt/Equity 34% 35% 36%

Debt is slightly higher than last year. Even though Debt -to- Equity ratio is in uptrend recently, the overall level of the debt is not high. Last year’s operating cash flow is negative, so the debt is not covered by it. However its interest expenses are exceptionally well covered by operating profit at 14x. Solvency II ratio is also at very satisfactory level of 180%. Mapfre has very good credit rating A- by S&P ratings agency.

  Investment Case

The estimate of future stock price and investment returns based on P/E ratio

Assumptions of dividend and EPS growth over the next 5 years
We assume dividend of EUR 0.145 each year over the next 5 years period and EPS of EUR 0.2 in 5 years’ time. Then the total dividend income over that period would amount to EUR 0.725.
Projected stock price
Average P/E over the last 5 years (11.9) multiplied by EPS in 5 years = 11.9x EUR 0.2 = EUR 2.38
Future Returns Based on the Assumptions
Stock price upside potential                                     31%    from the current price EUR 1.82

Overall return on investment*                                  70.6%

Compound Annual Return on Investment               11%

*- Includes the expected dividend income over the next 5 years and dividends are not reinvested.

The share price performance has been as follows:

Mapfre’s balance sheet is strong and additional financing is easily available. Its dividend yield is high relative to its competitors and dividend is safe. Geographic diversification adds to the stability of the results. At the same time Mapfre faces the same risks as any other company in the sector: high insurance claims, insurance price pressures, increases in paid commissions and many others. On general the company seems to be on the right path. The stock price upside potential in combination with high dividend yield looks attractive.

Disclosure:

I am long MAP.

Notes

Data source – the company’s financial reports and presentations. Source of pictures – the company website unless otherwise stated. Colored circles next to headings mean an author’s evaluation of the relevant performance criteria of the company: green means positive, yellow neutral and red negative evaluation. There are many ways to estimate the future stock price. We use only one of them, the one based on P/E ratio. All estimates made in the article are for the informational purposes only. No taxation, brokerage fees and other expenses related to investing are considered in the estimates. The estimates are the result of the rule of thumb assumptions and the real outcome might differ materially from those estimates. As the future unfolds, macro events, not mentioned in the article, could impact the company fundamentals. Use the information in the article only as a starting point for your own due diligence.

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