DFV Deutsche Familienversicherung — Good progress in H119

DFV Deutsche Familienversicherung — Good progress in H119

DFV Deutsche Familienversicherung (DFV) is a non-life insurtech company based in Europe. Its AI and automated processing platform allow for greater scalability, lower costs and quicker customer responses compared with typical insurance models. Following the company’s IPO in December 2018, management’s key focus is on growing the business while diversifying its product range and advancing digitisation. Earned premiums grew €8.5m in H119; the FY19 target is a €25m increase to €100m. The net income loss was €2.8m in H119, which was expected as DFV is paying upfront sales commissions on its fast-growing insurance book. DFV expects the current sales costs to earned premium ratio to decline from the current 1:2 to 1:5 by 2021, therefore returning profitability.

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DFV Deutsche Familienversicherung

Insurance

Price

€10.0

Market cap

€133m

Share price graph

Share details

Code

DFV

Shares in issue

13.3m

Solvency ratio

314%

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 the typically low levels of technology adoption in the insurance industry.

On track to meet its 2019 targets.

Development of IT infrastructure enables scalability, enabling substantial growth.

Bear

The company is expected to be loss making until 2021, with management guiding to an FY19 pre-tax loss of €9–11m.

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

33.5% free float, restricting share liquidity.

Analysts

Max Hayes

+44 (0)20 3077 5727

Pedro Fonseca

+44 (0)20 3077 5700

Good progress in H119

DFV Deutsche Familienversicherung (DFV) is a non-life insurtech company based in Europe. Its AI and automated processing platform allow for greater scalability, lower costs and quicker customer responses compared with typical insurance models. Following the company’s IPO in December 2018, management’s key focus is on growing the business while diversifying its product range and advancing digitisation. Earned premiums grew €8.5m in H119; the FY19 target is a €25m increase to €100m. The net income loss was €2.8m in H119, which was expected as DFV is paying upfront sales commissions on its fast-growing insurance book. DFV expects the current sales costs to earned premium ratio to decline from the current 1:2 to 1:5 by 2021, therefore returning profitability.

Targeting strong growth

Management aims to add 100,000 new contracts every year until 2021. DFV added 49,000 new contracts during H119. Management expects to see strong growth in its core supplemental health segment (90.3% of total earned premiums) as well as in property and casualty and pet insurance (introduced on 15 May). Partnerships with large corporate clients, such as Henkel, will help expand its customer base. Backed by improving digitisation (digitalisation of all processes is set for 2020), management’s long-term aim is to reach 1m new contracts (FY18: 435,000 contracts), about 0.6% of all potential insurance contracts in Germany (165m). In parallel, outsourcing DFV’s IT infrastructure will allow it to handle the increased pressure from automating its processes. Expanding the IT platform will allow for third-party marketing, contributing to further growth.

H119 results show momentum

DFV’s H119 revenue grew 62% y-o-y to €27m (95.2% from earned premiums). DFV’s loss ratio rose from 58.6% in H118 to 60.5% in H119. However, it was the significant increase in new contract commissions that led the combined ratio to rise from 78.1% (H118) to 110.5% (H119). Investment income of €1.2m was not enough to offset the increase in the combined ratio, resulting in a €2.8m net loss.

Valuation: H119 P/TBV 2.1x

Market expectations mirror company guidance that DFV will be loss making until 2021. ROE is forecast to be 5.3% (FY21e) and H119 P/BV was 2.1x. The company pays no dividends, using capital to help fund growth.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

34.7

(4.1)

(0.4)

0.0

N/A

N/A

12/19e

43.6

(9.8)

(0.5)

0.0

N/A

N/A

12/20e

58.0

(2.9)

(0.2)

0.0

N/A

N/A

12/21e

71.1

5.3

0.2

0.0

50.0

N/A

Source: Refinitiv

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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

1,185 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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This report has been prepared and issued by Edison. 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.

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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.

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The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 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

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

1,185 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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