World-beater Allianz cosies up to investors
Published 20/07/2015 | 02:30
It will be no surprise to regular readers of this column that when it comes to classy investments, just like Claudia Schiffer on the television adverts, I rate the Germans very highly indeed.
Since quantitative easing started in Europe, it is hard to ignore the quality German industrial stocks when seeking safe and more secure places for an investor's cash.
But the Germans display muscle in areas other than industrial engineering.
The company we are examining today, the financial services giant Allianz, has shared all the ambition of its industrial peers and has sought and achieved similar status.
More to the point, Allianz has recently won shareholder sentiment with a new and startlingly generous dividend policy and is even thinking of distributing unused funds every now and then.
Allianz goes way, way back. It was set up in 1890, initially as a marine and accident insurer. Like every other major corporation in Germany, it had its moments in, during and between the world wars. But by the mid- 1950s, it was once again the market leader in Germany. It proceeded to re-establish its business overseas mainly by acquisition. Over time it purchased US Firemen's Insurance, the UK Cornhill Insurance and the French insurance company AGI.
When the Berlin Wall came down in 1989 it marched eastwards. It acquired the state-owned insurance company in East Germany and invested in all countries in Eastern Europe.
Today, Allianz is the world's largest insurer. It sells insurance for just about everything, even for the launching of rockets and cyber protection.
The company also has two major asset management companies, Allianz Global Management and Pacific Investment Management Company (Pimco), with combined assets of €1.8 trillion. It has a network in 160 countries, a staggering 85 million customers, 150,000 employees, almost half a million shareholders with a market valued of €63bn.
Income last year was a record with an enormous €120bn (or €2.5bn each week); operating profit was a huge €10.4bn. In spite of the low-interest environment, Allianz life and health division's operating profit increased by almost a quarter to €3.3bn, thanks to growth in the US, Germany and Italy. The company's property/casualty division posted a modest rise in revenue of 2.2pc but accounts for half of group profits. Asset management contributed €2.6bn to group profits. But the company still has problems in Russia and Brazil.
Warming the cockles of investors' hearts - mine included - the company declared a one-third hike in dividends and it also outlined a new dividend policy. In future the company will distribute 50pc of the group's net profit as dividends and has indicated they should be at least the same as the previous year.
In addition, every three years the company will consider if it should distribute unused funds. Long-term investors who kept their shares for the last five years and opted to reinvest their dividends have been rewarded with an average annual rate of 15pc. The shares are trading in the €140s down from its yearly high of €170 but above its low of €110.
Allianz is well capitalised and with a valuation that is not demanding, the shares trading on a modest price-earnings multiple of 11 and offering a yield of 3.6pc. The company is a solid investment and its direct exposure to Greece is minor.
During the year, the company faced a problem following the abrupt leaving of Pimco's founder and CEO last September. This resulted in significant outflow of funds, said to be as high as €100bn, and was responsible for a decline in its operating profits to €2.6bn. To shore up its reputation, it has appointed Ben Bernanke as an adviser.
The outlook for 2015 is cautious. Nevertheless, on its 125th anniversary, the company has been listed by the US Federal Stability board as one of the nine companies being 'too big to fail'.
I get the jitters when I hear talk like that.
Nothing in this section should be taken as a recommendation, either explicit or implicit, to buy any of the shares mentioned.