BUY OR SELL-Will property slump, state aid weigh on SNS?
* Stock's price-to-book ratio is 0.22 vs 1.53 for sector
* Worries remain about property unit, state aid repayment
* Shares up 6.4 pct this year vs 3.8 pct fall for sector
AMSTERDAM, June 11 (Reuters) - Shares of Dutch bancassurer SNS Reaal (SR.AS) have outperformed European rivals recently and still look cheap against their peers, but the company is losing market share and has warned of rising property writedowns.
SNS Reaal cut its first-quarter loss to 4 million euros ($5.6 million) from 642 million euros posted in the October-December period last year, when it got a 750 million euro capital injection from the state.
Will SNS Reaal's results continue to improve and boost its share price?
Or could rising impairments at its international property finance unit, shrinking markets and a possible rights issue to cover state aid repayments nip the shares' recovery in the bud?
CHEAP VALUATION
Contracting financial markets, which hurt SNS Reaal in the first quarter, has already been priced into the shares, KBC analyst Dirk Peeters said.
"Declining markets will impact everyone the next six to twelve months. This is no longer a surprise," said Peeters, who has an "accumulate" rating and a 6.50 euro price target.
Trading at 4.14 euros on Thursday, the stock has a price-to-book ratio of 0.22, indicating SNS Reaal's market valuation is just 22 percent of the company's sum-of-the-parts -- or liquidation -- value, Reuters Estimates data shows.
The same ratio is 1.53 on average for the European insurance sector .SXIP, which includes rivals such as ING (ING.AS), Aegon (AEGN.AS) and Aviva (AV.L).
Dutch asset manager Fred Huibers from Haags Effectenkantoor bought SNS shares last month at around 4 euros, partly because they were cheap, he said.
"Last year's results were driven by exceptional items. We think financial markets will not again fall as hard as in the last quarter of 2008. If you look at that SNS Reaal has a very low valuation," Huibers said. He does not anticipate SNS Reaal will have to issue shares to pay back the first instalment of the state aid. The company has the option of paying back 250 million euros at favourable rates before the end of this year.
PROPERTY PROBLEMS, SHARE ISSUE?
SNS Reaal has discussed the possibility of a rights issue but has taken no concrete steps.
Given the better terms on offer, repaying 250 million euros this year would be sensible, Kepler Capital Markets analyst Benoit Petrarque said.
"I think there will be an issue of shares. You cannot issue perpetual bonds in the market right now, you cannot issue tier-1 capital," said Petrarque, who has a "reduce" rating and 2 euro price target on the stock.
SNS Reaal's property finance unit, which operates internationally and has 1.5 billion euros of U.S. and Spanish projects, was also a negative factor, Petrarque said.
RBS analyst Thomas Nagtegaal, who has a "hold" rating and price target of 4.50 euros, expected SNS Reaal would continue to suffer high loan losses in 2009 and 2010, along with margin pressure because it offers relatively high savings rates.
"Given ongoing savings margin pressure we expect SNS Reaal's earnings will not significantly recover before 2011," he said.
($1=.7087 Euro)
(editing by John Stonestreet)
