Sampo Earnings: On Track to Meet Our Full-Year Estimate; Shares Fairly Valued

Sampo SAMPO has reported profits before tax of EUR 722 million for the first six months of the year, or EUR 1.13 per share. That puts Sampo on track to realise EUR 2.27 in earnings per share for the full year, as per Refinitiv-collected consensus. Our full-year estimate is for a pretax income of EUR 1.6 billion, so perhaps we are a little ahead.

In Sampo’s property and casualty operations, the company has generated close to double-digit premium growth, which includes between 5%-6% of price increases. We view that as strong, considering it is ahead of the 4%-5% in claims inflation Sampo is seeing in the Nordic region. We believe Sampo has oriented its investments around improving its digital leadership in recent years and these efforts are bearing fruit as the business continues to post around 90% customer retention. Motor, which was until recently a moot point for Sampo with regard to the United Kingdom, is now moving to better rate adequacy. Hastings prices at the end of the second quarter are around 20.4 percentage points higher than at the end of last year. Hastings United Kingdom’s home policies have grown by 35% and U.K. motor policies by 3 percentage points. Per management, the U.K. motor market is still showing 12% claims inflation.

The expected synergies from the Hastings integration amount to EUR 45 million. These are expected to be achieved by the end of next year. These include EUR 30 million in earnings synergies coming from pricing, claims, digital, and information technology. Another EUR 15 million is expected from capital synergies. Year to date, EUR 23 million of these have been achieved because of fraud detection within claims. Management has outlined that there may be more synergies to be realised on top of the targeted EUR 45 million.

Sampo has delivered a 6.9% return on equity today, implying 13.9% for the full year. We maintain our EUR 40 per share fair value estimate and our narrow economic moat rating.