We set a EUR 6.38 target price based on a sum-of-the-parts valuation where we forecast divisional underlying free cash flow. The divisional free cash flows are discounted back to today and then valued into perpetuity (a similar concept to the dividend discount model) by applying a bottom up cost of equity. We then value the ASR stake based on 29.99% of our ASR target price.

The cost of equity 8.3% is comprised of 3.6% weighted average 10 year and a 4.7% equity risk premium.

Aegon is exposed to insurance risks associated with interest rate movements, equity market movements, mortality, credit losses, trading losses, derivatives exposures, operational risks, and margin compression. Its US business is sensitive to bond yields, with falling long-term yields being detrimental to earnings and value. Given the geographic split of its business, Aegon is exposed to translation risk in respect of adverse US$/Euro movements. Adverse or positive developments related to these factors could cause the shares to deviate significantly from our target price.