Strategic trade
Trade view / 16 February 2016 at 8:12 GMT

#SaxoStrats: European insurers feature solid yields

Head of Equity Strategy / Saxo Bank
Denmark
Instrument: EXH5:xetr
Price target:
Market price:
SaxoStrats
 
Background

Shares of the iShares STOXX Europe 600 Insurance ETF are down 22% since early December driven by recent market turmoil hitting investment income for insurers. The negative rate environment is obviously also hitting sentiment in the short term. 
Valuation, however, is attractive with a 12-month forward dividend yield at 5.6% and 12-month forward P/E of 9.4x.
The current price-to-book ratio is around one, implying that the industry is only able to cover its cost of equity. We find that too negative a view on the industry 
This is not a long-term strategic position as the industry will come under increasing pressure from negative rates, regulation on regulatory capital and increasing competition on premium. Our target is €27.

Management and risk description

Key risks include European government spreads widening, market turmoil, negative surprises to euro area macro data.

European insurers
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Source: Saxo Bank 

Parameters

Entry: buy EXH5:xetr at market.

Stop: trailing stop price €22.36, steps of €0.12

— Edited by Michael McKenna

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