AEG -- Comparing a European insurer to its trend and competitors
I am long Aegon (AEG), having first bought it in 11/2020, and adding to it in 6/2021.
AEG was, and remains, a turnaround play. Aegon is a European insurer, headquartered in the Netherlands, that also operates in the US through its TransAmerica subsidiary. European financials tend to trade at lower price-to-tangible-book-value multiples than their US peers, but for AEG it's extreme: Even after its 35% return over the past year, it's still only at 0.4x TBV. The reason is obvious: AEG's ROA over the last 10 years has been a shockingly low 0.2%. This link compares Aegon to ADRs of its European peers. The image here shows the gradual degradation in fundamentals over the past decades.
Now that AEG has reached the top of its longterm downward channel, it's time to evaluate whether it's worth sticking with this name. The stock has good momentum and the valuation is definitely still distressed. That said, another bad quarter would likely not go down well and, to be honest, I don't think the company is out of the woods. The low interest rates in Europe are persisting, as are the elevated payouts due to the global pandemic. I like the insurance sector, and I do like the valuation benefit that European insurers offer. But I will be cutting AEG in favor of a competitor with more exposure to growth markets, and a stronger profitability profile.
For anyone interested in insurance stocks, the Boston Consulting Group has put together a nice report on the drivers of success in this business.
AEG was, and remains, a turnaround play. Aegon is a European insurer, headquartered in the Netherlands, that also operates in the US through its TransAmerica subsidiary. European financials tend to trade at lower price-to-tangible-book-value multiples than their US peers, but for AEG it's extreme: Even after its 35% return over the past year, it's still only at 0.4x TBV. The reason is obvious: AEG's ROA over the last 10 years has been a shockingly low 0.2%. This link compares Aegon to ADRs of its European peers. The image here shows the gradual degradation in fundamentals over the past decades.
Now that AEG has reached the top of its longterm downward channel, it's time to evaluate whether it's worth sticking with this name. The stock has good momentum and the valuation is definitely still distressed. That said, another bad quarter would likely not go down well and, to be honest, I don't think the company is out of the woods. The low interest rates in Europe are persisting, as are the elevated payouts due to the global pandemic. I like the insurance sector, and I do like the valuation benefit that European insurers offer. But I will be cutting AEG in favor of a competitor with more exposure to growth markets, and a stronger profitability profile.
For anyone interested in insurance stocks, the Boston Consulting Group has put together a nice report on the drivers of success in this business.