Can a facelifted Axa push its assessment limit?

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Cash is ultimately what every investor would want back from the businesses they own. Complicated structures, indifferent returns and strategic mishaps have caused composite insurers’ shareholders to lose out in recent years. Axis France, having suffered from all three, is beginning to change that.

Since Thomas Buberl took over as chief executive of Axa in 2016, he has completely restructured the group and insisted that Axa prioritize shareholder returns over acquisitions. That strategy sparked a rise in the share price, approaching three times its lowest level since October 2020. However, Axa’s valuation still trails rival Allianz. On a forward price-to-earnings basis, Axa has yet to cross the 10x mark, a level it has rarely traded above since the financial crisis.

Buberl streamlined the group, moving it away from more capital-intensive life businesses and into more cash-generating lines such as property and casualty. He promised that Axa would return 75% of profits, splitting it into 60% for dividends and 15% for buybacks.

This was a commitment to regain shareholder confidence, damaged by the poorly executed acquisition of trading group P&C XL in 2018. Axa overpaid and then spent years getting the business into shape. This seems complete with XL generating €1.9 billion in earnings last year. Life now accounts for just a third of Axa Group’s business, down from two-thirds in 2016. Last week Moody’s raised the outlook on Axa’s debt to positive, due to reduced earnings exposure to life underwriting risk and a stronger balance sheet.

Composite insurers in general, aware that investors in the sector distrust anything that isn’t hard cash, have moved away from life policies that offer guarantees to less capital-intensive ones. Sectoral remittances – the cash that insurance operations bring to holding companies – rose to 80% of net profit from around 60% in 2016, supporting higher shareholder returns.

The €5.3 billion sale of Axa Investment Managers to BNP Paribas, due to be approved next year, could sweeten the deal. Sold at 15 times earnings, Axa plans a €3.8bn buyback to offset earnings dilution. About 1.3 billion euros left after taxes could be used for bolt-on deals, Berenberg notes — something cautious investors will be watching closely.

Over the past three years, Axa has delivered a shareholder return, including dividends, of more than 85%, half as much as the Stoxx 600 insurance index. But it is still relatively weakly valued at 9 times 2025 earnings, compared to Allianz on 11.

Investors still want to see how sustainable this cash flow really is in their pockets. Expect an affirmative answer in the coming year.

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