Phillipe Donnet was touted as the continuity candidate when he was appointed chief executive at Generali. He has stuck to the plans laid out by his popular predecessor, Mario Greco — yet Generali shares have fallen 12 per cent since he took over. Rival Zurich, now run by Mr Greco, has risen by more than a fifth.
The underperformance is partly down to domicile, which Mr Donnet can do little about. Italy remains the insurer’s largest market, and investors have tired of its volatile politics and slow-motion banking crisis. The imminent referendum on constitutional changes has only added to their aversion.
Like its peers, Generali must deal with low interest rates and uncertain growth prospects. Mr Donnet, however, brings experience of operating in a low interest rate environment from his years spent in Japan.
On Wednesday he reiterated targets announced last year — an annual return on equity of 13 per cent and cumulative free-cash flow of €7bn between 2015-18. Job cuts and other cost savings are expected to harvest an additional €200m per year by 2019. And there will be an extra one-off benefit of €1bn from disposals, mostly from exiting smaller markets.
The cost cuts should contribute to cash flow and underpin dividends rather than paying for pricey acquisitions. Generali has pledged to pay out at least €5bn over four years, equating to €0.83 per share per year.
That sounds a very similar strategy to those adopted by its rivals, yet its promised dividends imply a yield of nearly 8 per cent — well above the 5-6 per cent offered by European rivals.
That difference looks too wide. True, there is the lingering uncertainty surrounding Mediobanca’s intentions. It owns 13 per cent and has appointed several board members but the bank says it plans to trim this stake. For those willing to look past country risk, Generali looks attractive.
Email the Lex team at email@example.com