AXA S.A. (AXA) held its autumn investor conference on 25 November 2008, in which management announced that it expects AXA’s underlying earnings to be in the range of €3.6 bn - €4.0 bn for FY 2008, reflecting the impact of overall weakness in global financial markets on the company’s performance.
We expect economic conditions to continue to negatively impact performance in the near-to-medium term. However, AXA maintains that it has a strong capital position and does not need additional capital despite the deteriorating financial conditions. AXA’s indication that it continues to look at options to increase its global presence through strategic partnerships and acquisitions that are not dilutive to shareholders is attractive. Although AXA announced that it has now set aside its “Ambition 2012” targets, it believes that the current environment will allow it to “differentiate itself from competition”. We believe that the recent decline in the common stock price has left the stock undervalued.
Our estimate for gross revenues has been reduced for FY 2008, reflecting weak economic conditions and the decline in asset management fees identified by Management. We have significantly reduced our estimate for investment income for FY 2008 considering weakness in financial markets and Management guidance. Consequently, our estimates for operating profit and net income have been revised downwards.
We expect weak economic conditions coupled with the anticipated strengthening of the US dollar against the Euro to negatively impact premium income, and, coupled with lower anticipated asset management fees, have reduced our gross revenue estimate for FY 2009. We now expect the company to report investment losses, in contrast to our previous estimate of investment income for FY 2009, resulting from the continued deterioration of and turbulence in global financial markets. Consequently, our estimates for operating profit and net income have been revised downwards for FY 2009.
In expectation that challenging market conditions will continue for longer than previously expected, we have also revised our FY 2010 estimates downwards.
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Deteriorating economic conditions and ongoing weakness in global financial markets will continue to impact AXA’s performance in the near-to-medium term, with the IMF now forecasting recession in Europe and the US in 2009. As a result of the challenging and volatile conditions in financial markets, the company does not expect to achieve its earlier target of double digit growth in operating profit by FY 2012.
However, we believe the company is fundamentally well placed to withstand economic deterioration, and that its plans to expand into high growing emerging insurance markets through acquisitions that are not dilutive to shareholders are positive. We believe that the negatives have already been factored into the current price, and that it offers an attractive investment opportunity at current levels.
Disclosure: no positions