Analysis of Talanx 2016

Company: Talanx 

ISIN DE000TLX1005 | WKN TLX100 

Business: A German mutual holding insurance company. It is divided into five divisions: Industrial Lines (covering all the insurance needs of industrial companies), Retail Germany (retail and commercial customers covering property/casualty), Retail International (outside of Germany), Reinsurance (non-life reinsurance via especially Hannover Rückversicherung that Talanx own to 50.2%) and finally Financial Services (an internal reinsurance part for the entire group). 

Active: In over 150 countries.

P/E: 10.1

Here you can find the previous analysis of Talanx 2015. 

The P/E for Talanx is excellent with 10.1 and the P/B is also excellent with 0.6 which gives a very clear buy signal from Graham. The earnings to sales are not so impressive with only 3% and the ROE is also far from a value that one could consider to be good since it is not even 6%. The book to debt ratio is also low with 0.1 but it is nothing unusual for insurance companies.
In the last five years they have had an excellent yearly revenue growth rate of 5.9% and this then gives a motivated P/E of 16 to 20 which means that Talanx is today undervalued by the market.
They pay a very nice dividend of 4.4% which however represents 45% of their earnings which I normally would be fine with however in this case Talanx have as a rule to only pay out 35-45% of their earnings in dividends and if Talanx does not increase their earnings in 2016 the chance of a decreased dividend is very large.

Conclusion: Graham says yes to Talanx and I am a bit more cautious. Their outlook for the future was not the brightest one in the sky so even though all the key figures look fine for this year the risk of decreased dividend for the coming year is high. If the share price would have kept going up during the year then maybe that would not have been a problem but then I come back to the outlook. Why would the quarter reports arrive with any such amazing results to make the share price increase significantly during the year? Nah, when it was down to around 24 € in February then it was a good moment to step in and now I would not. I am already a shareholder and I will keep but not increase my holding.

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