Sampo/Elliott: trouble at the mill
The Finnish insurer’s fortunes will improve faster without Nordea
Finnish insurer Sampo is named after a mythical moneymaking milling machine. It’s about time it lived up to its moniker, reckons activist investor Elliott. The hedge fund, which owns 3 per cent of Sampo, thinks it could unlock up to €9bn of value by becoming a pure play insurer. This week’s €1.2bn sale of a fifth of its 19.9 per cent stake in Helsinki-based Nordea is a good start.
The Nordea stake, gradually amassed since 2008, was sold at 12 per cent more than Sampo’s average purchase price, though below its book value. But the holding has done disproportionate damage to investor perceptions. As the fortunes of the insurance and banking sectors diverged in recent years, a hefty conglomerate discount emerged.
Stripping out the Nordea stake, Sampo’s core insurance businesses trade at 15 times forward earnings, compared with about 20 times four years ago. Conversely, those of Nordic peers Tryg and Gjensidige now trade at nearly 21 times, nearly a third higher than back then.
Were Sampo to sell off its remaining Nordea stake — or perhaps distribute the shares as a dividend — it may achieve the same multiples as its rivals, and possibly regain its historic premium. That could add as much as €9bn of market value.
Then again given intensifying competition, regaining its historic premium might be too optimistic. Denmark-based Tryg plans to buy the Scandinavian business of British insurer RSA for £4.2bn. That should enable it to rival Sampo as the largest Nordic property and casualty insurer.
Still the size and profitability of Sampo’s core insurance business impresses. Elliott, obviously a fan, describes Sampo as the best underwriter in Europe’s most attractive market. Credit goes to Torbjorn Magnusson, who ran this business for nearly two decades before taking on Sampo’s top job in January.
That sort of flattery should make him receptive to Elliott’s arguments. This week’s sale sends an encouraging signal. While a turnround is under way at Nordea, Sampo’s fortunes will improve faster without it.