Mediobanca promotes Generali and bets on merger between Alleanza and B.Generali

(Il Sole 24 Ore Radiocor)- Mediobanca puts under the lens Generali , believing the shares are worth buying (rating of 'Outperform' with price target at 39 euro). In a comprehensive study titled 'Value under the Lion's Wing', the analysts from Piazzetta Cuccia do not dwell too much on the balance sheet numbers released by the Trieste-based group last week, but rather are keen to provide suggestions for further value creation. For the experts at Piazzetta Cuccia, the main road to unleashing a potential of up to EUR 6 billion for the group passes through the integration between the subsidiaries Alleanza, whose capital is held at 100%, and Banca Generali , with a 50.2% stake. The integration could represent "a multibillion-dollar value creation opportunity and a decisive competitive advantage in the European insurance landscape," the experts explained, further stating that "based on conservative assumptions, we estimate a potential value creation of around EUR 6 billion before minority interests, or around 12% of Generali's market capitalisation. Last October - it should be recalled - Alleanza Assicurazioni and Banca Generali launched a strategic partnership in insurbanking to integrate insurance protection and client wealth management.

The shares of the subsidiary Banca Generali benefit from the suggestion made again by Mediobanca analysts who, "in this context and considering the potential value to be created", believe that "a rationalisation of Banca Generali's minority shareholdings (through cash or securities, or a combination of both) might be appropriate before maximising the potential for synergies". In practice they urge the repurchase of the minority, i.e. the entire capital of Banca Generali, which they now control for just over 50%. On this suggestion they also raised the rating on Banca Generali to 'Outperform' and the price target to 60 euro, from the previous 56 euro.

It should be remembered that Mediobanca is the main shareholder of Generali, with a sharearound 13% of the capital, although since last autumn Banca Mps has become a reference partner of Piazzetta Cuccia. The report, however, is an analysis produced by the financial experts who follow the markets and operate separately from the professionals of the investment banking division.

The study suggests a review of Generali's internal asset management platform. Mediobanca first wants to "dispel the myth" that an efficient European platform requires a "minimum limit" of 2 trillion euros in assets under management to operate profitably. "Framing this threshold as a structural 'minimum limit' risks over-simplifying the economics of asset management," explained Mediobanca's experts, believing that competitive advantage depends less on the absolute value of assets under management and more on the alignment between investment capacity, distribution strength and capital efficiency. "From this point of view, Assicurazioni Generali appears structurally well positioned," they continued, "the acquisitions of Conning and MGG Investment Group have strengthened the group's specialist skills in the US and emerging fixed income, alternative credit, real estate and private markets sectors. For Mediobanca, at this point, the strategic direction should be clear: 'to build differentiated investment expertise rather than accumulate assets just to get bigger'.

In its report, the experts at Piazzetta Cuccia develop the scenario further. "In our view," they explain, "the debate on Generali's asset management strategy should therefore go beyond simple asset under management targets and focus instead on structural optimisation and platform integration, while continuing to assess potential value creation opportunities". Translated for the analysts, "the most interesting opportunity for Generali could lie in unlocking the full potential of its domestic distribution ecosystem", bearing in mind that it can already count on Alleanza Assicurazioni and Banca Generali "two complementary, but only partially integrated, realities in the Italia asset gathering landscape". The experts recalled that Alleanza offers large-scale distribution, serving some 1.9 million clients through a national network of around 10,000 agents. The company, however, does not have a banking licence, which limits its ability to provide comprehensive wealth solutions. It is exposed to a 'lower affluent' audience, unlike Banca Generali, which has a strong position in the affluent and upper-affluent segments of the clientele. The latter, the analysts pointed out, has over 100 billion in assets under management and a solid capital position with a CET1 of around 18%. The bank boasts a network with more than 2,350 advisors and a territorial presence thanks to some 50 branches. Mediobanca also points the finger at Generali's 50.2% stake in Banca Generali, which it describes as a "legacy of the capital constraints following the EU sovereign debt crisis" and which now makes the structure "less than optimal". In short, for Mediobanca, Generali should buy all of Banca Generali's shares, also "in light of the favourable swap ratio". Moreover, 'the company's reduced leverage and the revision of the Solvency II framework - which we expect to improve the group's solvency margin by about 15 points - further strengthen the financial rationale of a possible transaction'. Obviously Mediobanca puts its hands up and warns that 'the risk that our rating may turn out to be overly positive lies, above all, in the fact that our thesis on the minority buy-back is unfounded'.