Sampo Q3'24: Streak of strong quarters continues

Translation: Original published in Finnish on 11/6/2024 at 9:50 pm EET.

The profitability of Sampo's insurance operations remained strong in the third quarter of the year, and the forecast changes for the coming years remained quite moderate. We still see the stock as correctly priced and thus consider the risk/reward ratio to be neutral. We reiterate our Reduce recommendation and revise our target price to EUR 42.0 per share (was 41.0e), considering the value in our dividend model.

Result exceeded our expectations thanks to good progress in insurance operations

The Q3 result published by Sampo was somewhat better than we had expected. This was largely explained by favorable profitability developments in the insurance operations, as the result from the investment operations was slightly below expectations. Overall, Sampo's profit before taxes was 432 MEUR, which exceeded our forecast by approximately 5%. While progress was quite good across the board, the biggest earnings growth came from Hastings in the UK, where profit before taxes was up 60% year-on-year. If's profitability was also strong as the favorable weather conditions kept claim levels in check. Sampo also confirmed that it now owns all of Topdanmark's shares. Synergies are expected to be gradually visible from next year onwards, and Sampo already promised a first progress report in Q1.

Forecast changes remained moderate

Overall, the changes in forecasts following the report remained fairly moderate. We slightly raised our growth estimates for Hastings over the next few years, following continued strong momentum. At the same time, we slightly lowered our forecasts for If's investment income, so that the net effect of the two was almost offset. Overall, our earnings projections for the coming years remained broadly unchanged. For the full year, we now expect a group combined ratio of slightly above 84%, which is in line with the company's current guidance (83-85%).

Our view on Sampo's performance has remained unchanged and we estimate that the company's normal earnings under the current structure is about EUR 2.5-2.6 per share The level should be growing steadily, driven by operating profit growth and share buybacks, but larger level adjustments should not be expected given the current excellent performance of the businesses. However, the forthcoming integration of Topdanmark into If should provide a small boost to cost efficiency from 2026 onwards as the targeted synergies are gradually achieved.

The stock is correctly priced

In our valuation, our focus is particularly on the dividend model, as the investment needs of the business are low and Sampo is able to distribute most of its earnings to its shareholders. Sampo's value per share under our dividend model, which takes into account the excess capital on the balance sheet, is EUR 42 (was EUR 41). The small rise is due to a slight increase in our estimates of the amount of excess capital on the balance sheet. Sampo's value is supported by its low investment rate and moderate risk level. In a mature industry, growth opportunities are limited, which lowers the acceptable valuation level. As a whole, we consider the stock to be correctly priced (2024e P/E >16x) and believe that a better expected return would require faster earnings growth than we expect, now that significant new acquisitions are quite unlikely after the acquisition of the remaining shares in Topdanmark.