Hannover Re Earnings: Shares Undervalued as Company Continues Year-to-Date Good Start

Hannover Re HNR1 delivered good first-half results, with net income amounting to EUR 960 million. We think this leaves the business relatively well placed against our full-year net income forecast of EUR 1.6 billion, or EUR 13.64 in earnings per share. Hannover operates with a full-year net income target of equal to or greater than EUR 1.7 billion. First-half earnings of EUR 7.96 per share probably leaves the business a little light versus the full-year forecast of EUR 14.65 per share as per Refinitiv-collected consensus. We surmise that is the reason behind the fall in the share price after the earnings report, which we believe creates a buying opportunity for investors. We maintain our fair value estimate of EUR 220 per share. That equates to fair value/earnings for 2023 of around 16.5 times.

Versus the end of last year, the company’s leverage improved as a result of reductions in debt and improvements in shareholders’ equity. The absolute debt level fell by EUR 570 million as the company repaid subordinated debt issued in 2012 by Hannover Luxembourg. Shareholders’ equity rose largely as a result of this year’s first-half earnings, and the combination of the two meant a reduction in leverage, with debt/equity falling from 68.1% at the end of last year to 48.6% as of June 30. That means the capital position of the business under accounting standards looks good and is approaching our 35% forecast. As a result of the net income achieved so far this year, Hannover has delivered a return on equity of 9.4% year to date; we believe that leaves the business in a strong position to deliver a midteens return to shareholders. We apply an 11% cost of capital to Hannover, so this means that the company continues to deliver economic profits. That is the basis on which we have awarded and now maintain our narrow economic moat rating.