Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:
Allianz Sheds Its Accident-Prone Past by George Frey
Summary: German insurer Allianz (AZ) seems to have mapped out its route to recovery. Shares fell 80% post 9/11, but are up 14% over the past year, and have more than doubled since late 2004. CEO Michael Diekmann has adopted a '3+One' set of goals, aiming to 1) improve its capital base, 2) raise profits, and 3) streamline its corporate structure -- the +One is to increase competitiveness and long-term value. 2006 profits jumped 60% (to $9.3 billion) on a low natural-disaster year, while revenues climbed just 0.2%. Allianz forecasts operating profit growth of 10% annually until 2009, and proposed lifting its dividend 90%, suggesting it would continue to do so for at least the next two years. The company is reducing management layers and forging into fast-growing emerging markets like China and India. To increase operational effluency, it recently spent about €16.5 billion merging Italian, German, and French units into the mother company; in America it consolidated its IT, human resources, and legal services into a central back office. Its recent historic status switch from an Aktiengesellschaft [AG] (German company) to a Societas Europaea [SE] (pan-European entity) should help bolster its cross-border business. Profits from its still controversial Dresdner Bank acquisition are on the rise (from €704 million to €1.4 billion), and Allianz says the synergy should help it push its cross-selling (property, casualty, life, health) strategy as it begins to sell insurance from its banks and offer banking from insurance outlets. Excess cash flow of close to €3 billion a year could be used to buy back shares, and its current 13% return on capital gives it plenty of growing room before reaching the 20% top bankers receive. Shares could gain 20% or more over the next 12 months.
Related Links: Allianz on Wikipedia • Eight Top Picks From Big-Cap Giants Rob Lyon and Jerry Senser • Allianz note to shareholders confirming conversion to SE • Say Ach Ya To Germany: A Global Powerhouse