EFTA01385510

> Financials Deutsche Bank 0 AXA - Oliver Steel, BUY, close €25.20, €28.50 tgt, 13% upside ■ AXA is geared to rising bond yields, especially in the US, and the DB house view sees upside to bond yields from better macro. - The downside in any case is modest: US 10 year would need to fall to 1.5% before further reserving fears could be valid. ■ The solvency ratio is robust at 200%. ■ We see re-rating potential as M&A plans are executed. This cannot be risk free, but the scale of the plans is modest in the context of the group (planned disposals account for 13% of group earnings); yet the shares now trade 15% below the sector. ■ We see earnings upgrade potential on delivery of the five-year plan. - Management has recently reiterated its confidence in the group target of 5% pa EPS growth in 2015-2020 (despite FX headwinds). This implies c.7% pa growth over the course of 2018e-2020e. ■ Our forecasts are in line with management's 5% p.a. base case, but are still conservative. For instance, we do not incorporate any revenue benefit from the 'simplify to accelerate' programme (focusing on only 16 principal countries, reducing management layers). ■ The simplification programme should deliver the equivalent of €0.3bn in cost savings within two years (c5% of 2016 net income). ■ In summary, AXA is far too cheap at a 15% discount to the sector — with the potential to re-rate in 2018. It currently trades on 9.5x 2019E, vs conglomerate peers at 11.7x and sector at 11.0x ■ Catalysts: planned M&A during 2018; FY and 1H results. Related DB Research: AXA: A confident investor day update (Steel) European Insurers: 2018 - Safety and Optionality (Steel) Potential for significant EPS acceleration — and on delivery, re-rating Potential EPS growth - based on AXA targets 2016 2017e 2018e 2019e 2020e mom Bd ylds awe Efficiency Tech margin ma MBA sumw Growth Source: Company data. Deutsche Bank estimates Equ mkts & FX --Total Deutsche Bank Research' European Equity Focus - Jaraaiy 2016 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL SDNY_GM_00232980 DB-SDNY-0086796 EFTA01385510