Merrill Lynch says the insurer is targeting the largely untapped European markets of Spain, Italy, Poland and Romania
CGNU's profitability looks set to continue in the medium term thanks to its increasing exposure to European markets, according to Roman Cizdyn, life and insurance analyst at Merrill Lynch.
The company is rapidly growing its life business in European markets, which in comparison to the UK are viewed as being relatively underinsured. Spain, Italy, Poland and Romania are also starting to see the emergence of a savings culture, which CGNU is well positioned to benefit from, Cizdyn believes. 'More and more people in these countries will have to save for the future as governments will no longer be able to guarantee pension provision. CGNU has developed strong distribution channels which will allow it to continue to grow,' he said.
On the domestic front, CGNU's scale has allowed it to leverage itself into a dominant position in the group pensions market, according to Merrills.
'The merger with CGU has meant that the new company has been able to do things on the back of its size, such as generating a lot of economies of scale. The Norwich Union management which runs the new company is also very well thought of in the City,' Cizdyn said.
He believes that the stock is currently undervalued, trading at around £10 per share, having nudged £12 earlier in the year.
On the down side, life profit margins in the UK are expected to fall, although CGNU's size means that it is likely to be able to weather the storm without too many difficulties, said Cizdyn.
By contrast, Reuters is very difficult to value due to the highly specialised nature of its core business activities, believes Rathbones fund manager Hugh Priestley.
'This is a company that always appears to be very expensive, although this is perhaps due to scarcity of stock. We're holding this as a high risk and therefore high growth stock as part of our recovery portfolio,' said Priestley.
The market's verdict on whether the stock represents good value will probably take place following the next set of profit figures, due later this month.
Priestley believes Reuters may have an opportunity to increase market share at the expense of its only real rival, Bloomberg, following the decision of the owner of the latter company to run for mayor of New York.
Reuters has also announced ambitious cuts in its substantial cost base, aiming to reduce expenditure by £150m annually on sales of £4bn. These are due to come online this year and Priestley believes that this may result in the disposal of non-core assets, such as holdings in the Nasdaq-listed software company Tisco.
The cost cutting and repositioning process has led commentators to expect a big jump in earnings next year, he said. Investment Week 3 September 2001
52wk high 28/12/2000 1140p
52wk low 22/03/2001 876.5p
Ytd change -53.5p
% change -4.94%
One yr total return -2.67%
Market cap £23130.96m
Est P/E 17.88
Est PEG 2.23
Vitality at Work scheme
Reporting to Steve Hill
Appointed on 19 September
Plans to double size in five years
Unnamed company valuation reduced