Strong balance sheet not yet reflected in share price

- We derive a new target price of EUR 40, based on rather conservative assumptions. We therefore reiterate our Buy recommendation. VIG is currently traded at single-digit P/Es and below book value. Given the company’s excellent balance sheet and strong track record during the crisis in 2008-09, we are very optimistic that the company will also deliver in the coming years.

– A closer look at the financial statements of VIG’s peer group reveals huge differences in the quality of the balance sheets. VIG’s equity ratio (12.7%) and solvency ratio (210-220%) are clearly better than those of Western European peers and only beaten by the outstanding balance sheet of PZU. With regards to the sovereign debt exposure to PIIGS countries, VIG has only 0.4% of its total financial statements invested in these countries. Compared to its shareholders’ equity, VIG’s PIIGS exposure amounts to 2.3%. Both ratios are (by far) the lowest within its peer group.

– VIG is interested in buying Poland’s Warta, which has a market share of 7.7% in life insurance business and 8.9% in non-life business (as of 1H11 and according to the Polish Financial Supervision Authority). The acquisition of Warta would lift VIG into the undisputed no. 2 position in the highly attractive Polish market.

– We slightly adjust our estimates for the current year as well as for the coming years to reflect the depressed economic outlook.