Deutsche Bank says buy these 14 beaten-down financial stocks poised for a bullish recovery from 2020's 'savage sell-off' — including one that could rally 30%

  • The financial sector was hard-hit by the coronavirus sell-off of value stocks and rock-bottom interest rates, but is set to continue its recovery from the fourth quarter of 2020.
  • Deutsche Bank see a recovery in dividend payments within the European insurance space.
  • These are the 14 stocks they are bullish on and why.
  • Visit Business Insider's homepage for more stories.

The financial sector was one of the hardest hit during the coronavirus crisis sell-off in March last year, as investors fled positions in value stocks. Deutsche Bank believes these stocks look cheap right now, given where valuations are trading and the prospect that dividends may soon be reinstated, and more gains lie in store for those that buy early.

European banks and insurers tumbled, as regulators forced firms to cut, or even shelve, dividend payments, alongside record low interest rates that pushed down lending profitability, while consumers hunkered down and saved any spare cash, rather than spending it.  Now, with economic recovery forecast as vaccines allow economies to reopen, these value stocks are set for a possible renewal.

In the fourth quarter of 2020, when the first COVID-19 vaccine candidates emerged, markets witnessed this come into effect with a historic push into these beaten-down shares. The MSCI Global Value index, a basket of cyclical stocks, gained 15.2% in the fourth quarter, compared to the 12.4% gains in the corresponding growth index.

For several major banks and asset managers, this was just the start, forecasting further gains through 2021 as the West gradually recovers from the economic devastation of the coronavirus crisis.

European insurers are likely winners in this rejuvenation of the financial sector, according to Deutsche Bank, which says there will be a "return to well-underpinned dividends," according to a note published Monday, including research analyst Oliver Steel.

"The sector still trades 7%-8% cheaper than it did twelve months ago (on PE and dividend yield metrics respectively); and on a relative basis the gap is even wider," the note said, offering promising assets at cheap prices.

"The sector currently trades on a 12-month forward PE and dividend yield of 10.8x and 5.7% respectively, which are respectively a little above the mid-point of the long-term range for the PE (9.5x-11.5x in normal markets) and at the cheaper end for the yield (4%-6%)," it added.

These are Deutsche Bank's top picks from the European financials universe, including their price targets, upside potential for their shares and analyst commentary:


  • Ticker: SCR.EPA
  • Market cap: €4.92bln
  • Current Price: €27.66
  • Old/New Price Target: N/A/€36.00
  • % upside: 30.15%
  • DB recommendation: Buy

Just Group Plc

  • Ticker: JUST.LON
  • Market cap: £736.69 mln
  • Current Price: 70p
  • Old/New Price Target: 63p / 80p
  • % change: 27.0%
  • % upside: 14.29%
  • DB recommendation: Hold

"The main upside risk is anything that improves the solvency position relative to our assumption. This could include house prices holding up better than our assumed fall in 2021, further hedging or sale of the NNEG position (thus reducing house price sensitivity), reinsurance of the back book, the emergence of further third-party capital to fund new business or the potential for Just to find a trade buyer. Downside risks are anything that weakens the solvency outlook – including worse-than- assumed house prices or worse-than-assumed UK credit defaults. In the long term too, the group's franchise in the smaller defined benefit pensions space could be weakened by competition from new pensions superfunds," the note said.

Standard Life Aberdeen

  • Ticker: SLA.LON
  • Market cap: £6.53 bln
  • Current Price: 279.90p
  • Old/New Price Target: 265.00p/310.00p
  • % change: 17.0%
  • % upside: 10.75%
  • DB recommendation: Hold

"The group's earnings are highly geared – in both directions – to investment market direction (including emerging markets), net flows, revenue margins and expenses. Implicitly it is also exposed to UK political and economic risk, albeit partly offset by exposure to FuM in foreign currencies. Downside risks include failure of currently negative net flows to recover in line with our assumptions, failure to win the extra FuM from Phoenix, greater revenue margin pressure than we currently assume, loss of key staff and greater potential for dividend cut under the new CEO. Upside risks include a quicker recovery in net flows and the potential for a reinvigorated delivery under the new CEO," the note said.


  • Ticker: AV.LON
  • Market cap: £13.49 bln
  • Current Price: 343.30p
  • Old/New Price Target: 375.00p/425.00p
  • % change: 13.3%
  • % upside: 23.80%
  • DB recommendation: Buy

"The shares are sensitive to UK political risk and to market risk (being negatively affected by lower swap rates and higher credit spreads / defaults). Other downside risks include lower-than-expected proceeds from potential disposals, failure to execute on disposals, a lower capital return than expected (perhaps reflecting further provisions or a preference for acquisitions) or a delay to any capital return," the note said.


  • Ticker: PRU.LON
  • Market cap: £37.65 bln
  • Current Price: 1443.00p
  • Old/New Price Target: 1400.00p/1510.00p
  • % change: 7.9%
  • % upside: 4.64%
  • DB recommendation: Buy

"The group's US valuation (<10% of our valuation) is sensitive to investment markets – with higher US corporate spreads, increased defaults and lower US bond yields in particular representing a negative to the solvency ratio. Other downside risks include prolonged financial and economic impacts in Asia (and the US) from Covid- 19, lower Asian growth and continued political unrest or financial fallout from the HK security law (where the group is now regulated). Downside risks also include the possibility of further dilution to the US value if new equity is raised at the proposed minority IPO or that a minority IPO is not delivered," the note said.


  • Ticker: G.BIT
  • Market cap: €22.47 bln
  • Current Price: €14.26
  • Old/New Price Target: N/A/€17.00
  • % upside: 19.21%
  • DB recommendation: Buy


  • Ticker: ALV.ETR
  • Market cap: €84.31bln
  • Current Price: €203.70
  • Old/New Price Target: N/A/€230
  • % upside: 12.91%
  • DB recommendation: Buy

"Key downside risks: negative surprise on capital management actions (including poor M&A activity), a significant or prolonged downturn in the non-life pricing cycle (particularly longer tailed liability lines), an inability to deliver on operational improvement projects (particularly in the P&C business), negative flow and margin developments at PIMCO, adverse financial market developments (particularly in relation to the impact on solvency and/or dividend paying ability and given Allianz, like other insurers has arguably moved up the risk curve in light of the lower for longer interest rate environment), the potential inadequacy of prior-year non-life loss reserves (especially in the US), and regulatory uncertainties," the note said.


  • Ticker: CS.EPA
  • Market cap: €48.68 bln
  • Current Price: €20.13
  • Old/New Price Target: N/A/€24.5
  • % upside: 21.71%
  • DB recommendation: Buy

  • Ticker: MNG.LON
  • Market cap: £5.22 bln
  • Current Price: 201.10p
  • Old/New Price Target: 195.00p/210.00p
  • % change: 7.7%
  • % upside: 4.43%
  • DB recommendation: Hold

"Upside risks include: the potential for PruFund and institutional flows to exceed expectations with the new propositions, higher-than-expected Heritage management actions (including a higher-than expected capital release on a further disposal of the annuity book), and anything that enables faster debt reduction than currently expected," the note said.

  • Ticker: PHNX.LON
  • Market cap: £7.24 bln
  • Current Price: 724.40p
  • Old/New Price Target: 740.00p/795.00p
  • % change: 7.4%
  • % upside: 9.61%
  • DB recommendation: Hold

"Key upside risks include Phoenix finding a larger, more accretive acquisition than we assume, increasing balance sheet flexibility via a disposal of the European operations or delivering better-than-expected new business flows.

"Key downside risks include execution risks associated with its recent acquisitions, and anything that impinges on cash flow or the ability to maintain an investment grade rating – including a tighter regulatory or solvency environment, wider credit spreads, lower investment returns, UK economic & political risk or non-delivery of restructuring benefits," it said.

  • Ticker: COFA.PA
  • Market cap: €1.27 bln
  • Current Price: €8.34
  • Old/New Price Target: €9.50/€10.20
  • % change: 7.4%
  • % upside: 22.3%
  • DB recommendation: Buy


Key inputs include: an over-the-cycle combined ratio of 80% and an investment return of 1.5%. We apply a cost of equity of 11.0% which we adjust for two factors: (a) an above-average 'franchise score' (3.1 in Coface's case) which increases our valuation by 1.5% and (b) a market-related stress test which has a c.10% negative impact reflecting Coface's below-average asset risk.

"Key downside risks relate to: despite improved underwriting/risk management, the group remains vulnerable to a financial/economic crisis – which could lead to share price weakness and potential pressure on capital and dividend. We also note that even just fears of a new (or prolonged) crisis could drive further share price volatility. Other downside risks include: worse-than-expected execution of newly announced strategic plan (from both a top-line and bottom-line perspective), capital requirements weakening more quickly than expected, and adverse developments more broadly, particularly in Emerging Markets," the note said.

Legal & General

  • Ticker: LGEN.LON
  • Market cap: £16.14 bln
  • Current Price: 270.40p
  • Old/New Price Target: 285.00p/300.00p
  • % change: 5.3%
  • % upside: 10.95%
  • DB recommendation: Buy

"The group's solvency ratio is geared on the downside to lower bond yields, equity markets and higher corporate bond defaults – all possible under an extended lockdown. As a largely domestic UK business, it is particularly sensitive to UK economic and political risk, especially to anything that could impinge on the value of its UK infrastructure investments or credit exposure. Both future EPS and dividend growth targets could be vulnerable in the event of a further solvency ratio decline," the note said.

Direct Line Group

  • Ticker: DLGD.LON
  • Market cap: £4.55 bln
  • Current Price: 333.10p
  • Old/New Price Target: 350.00p/355.00p
  • % change: 1.4%
  • % upside: 6.57%
  • DB recommendation: Hold

Hannover Re

  • Ticker: HNR1.ETR
  • Market cap: €16.12 bln
  • Current Price: €134.00
  • Old/New Price Target: €130.00/€160.00
  • % change: 23.08%
  • % upside: 19.4%
  • DB recommendation: Buy

Source: Read Full Article