Estimates lowered, dividend forecast left unchanged

– Recommendation cut to Accumulate: We stick to our positive view on the stock, but lower our recommendation from Buy to Accumulate. Our target price is lifted to EUR 43 (from EUR 42), due mainly to the increased shareholders’ equity.

– Shares currently trading at book value: In August, VIG shares’ positive momentum was stopped upon the announcement of the goodwill impairment, as well as the 1H13 results. The stock has been underperforming benchmarks since then. Currently, it is trading at its 2013e book value per share. We still believe that the projected profitability growth beyond 2013 should warrant a premium above its book value.

– Earnings forecast reduced: We lowered our profitability projections for the current year quite substantially to accommodate the EUR 75mn goodwill impairment (Romania), as well as EUR 50mn in precautionary measures that burdened VIG’s results in 2Q13. The EPS forecast for 2013 thus drops to EUR 2.79, from EUR 3.43. Nonetheless, we anticipate VIG to present strong results in 2H13. For 2014 and 2015, we expect EPS of EUR 3.73 and EUR 4.00, respectively. 

– Dividend expectation unchanged: VIG’s management did not indicate if the one-offs in 2Q13 will have an effect on the 2013 dividend or if the payout ratio will be adjusted. Our DPS projection remains unchanged at EUR 1.30. We assume that the company will allow the payout ratio to rise above 40% to ensure continuous growth of its profit distribution.