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On track for a profitable 2021

DFV Deutsche Familienversicherung 22 October 2020 QuickView
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DFV Deutsche Familienversicherung

On track for a profitable 2021

Insurance

Deutsches Eigenkapitalforum 2020

22 October 2020

Price

€21.11

Market cap

€308m

Share price graph

Share details

Code

DFV

Shares in issue

14.6m

Solvency ratio

218%

Business description

DFV Deutsche Familienversicherung engages in digital insurtech, focusing on selling insurance policies both digitally and online. The DFV customer portal and app are the foundations of the company’s digital offering. DFV’s insurance policies include health and property insurance.

Bull

Rapidly growing non-life insurtech company in Europe, taking advantage of typically low levels of technology adoption in the insurance industry.

CareFlex Chemie solution looks set to almost double growth in 2021.

Strong solvency ratio of 218% at H2 despite investments in business growth; liquidity supported by capital raise of €32m (gross) in July (ratio rises to over 300% following raise).

Bear

Capital investment income exposed to COVID-19 related uncertainty.

Competing in a well-established market, has relatively low economies of scale.

26% free float, restricting share liquidity.

Analyst

Max Hayes

+44 (0)20 3077 5727

DFV Deutsche Familienversicherung (DFV) is a health and P&C insurtech company and the first fully digital insurer in Europe. Its AI and automated processing platform allow for greater scalability, lower costs and quicker customer responses compared with typical insurance models. Close peer Lemonade’s IPO in July 2020 highlighted DFV’s potential undervaluation considering its lower capital requirements. Earned premiums in H120 grew 10.6% y-o-y to €28.4m (H119: €25.7m). The net income loss of €4.1m was in line with management’s expectations, driven by a negative investment loss and upfront sales commissions paid on its fast-growing insurance book. DFV is on track to reach an earned premiums to sales cost ratio of 4:1 by end of FY20, which should return the business to profitability in 2021.

Growth forecast to double

DFV is on track to meet an annual target of 100,000 new contracts (H120: 46,515), which would increase the volume of existing policies to more than €125m. Management expects existing volumes to increase by c 60% to over €200m in 2021 and for contracts to almost double to 1.1 million (FY20 guidance: 570,000) driven by the introduction of new CareFlex Chemie policies. CareFlex Chemie is the first German consortium (which DFV co-manages) that provides financed supplementary long-term healthcare insurance in the chemical industry. CareFlex comes with no acquisition costs, which would typically total €70.7m for 500,000 customers. Management is also seeking to enter other European markets in the next two years, which will further accelerate growth.

Limited impact from COVID-19

DFV’s gross written premiums increased by 28.3% y-o-y to €53.7m (H119: €41.9m). Its combined ratio of 108.1% fell within management’s target range of 95–110% and is expected to fall to 90% by 2022 during its consolidation phase. Management state that its IT costs per insured risk are, on average, 50% cheaper than the insurance industry, which will support scalable growth and profitability.

Valuation: Strong and stable

Market expectations mirror company guidance that DFV will be loss-making until 2021. Gross premiums are forecast to grow at a CAGR of 39%, reaching €245.9m in 2022 (FY19: €90.9m) (Refinitiv consensus). The company pays no dividends, using capital to help fund growth.

Consensus estimates

Year
end

Revenue
(€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

Combined ratio (%)

P/E
(x)

12/18

66.5

(2.3)

(0.36)

0.00

N/A

N/A

12/19

90.9

(3.4)

(0.16)

0.00

N/A

N/A

12/20e

102.8

(8.1)

(0.54)

0.00

115.8

N/A

12/21e

163.8

14.1

0.39

0.01

95.2

54.1

Source: Refinitiv

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This report has been prepared and issued by Edison as part of a road show package for companies attending the Eigenkapital Forum. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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