Ran into ING US (VOYA) while hunting for cheap price to book investments. It has turned into a bit more interesting than just that metric and indeed may be an aig-style investment.
A background:
ING US is a financial services company that until recently was part of the Dutch company ING Groep NV. It, like many global financial services companies, went to the brink of catastrophe in 2008 and more specifically received a $13.5B tarp-like capital injection from the the Dutch State. Since then, ING has been selling assets to repay the bailout, most recently with the IPO of ING US (to be renamed
VOYA Financial in 2014).
Key points of a long view here include: 1) forced selling by ING's parent 2) a stabilizing retirement, insurance & asset management business:
1) Forced selling - VOYA's own prospectus calls this ipo a divestment transaction meant to repay part of the remaining 2.2B EUR ( 10B - 7.8B from previous transactions) that VOYA still needs to repay. As such, it is clearly government-driven and not focused on economic value given back to the firm.
2) While it is one of the largest life insurers in the US, nearly half of VOYA's revenues actually come from the retirement division:
Revenues from that half the firm are fairly recurring and stable as a percentage of AUM. Provide plan administration, i.e. the boring/safe side of the business. Same goes for the asset/investment management side of the business. On the insurance side, there is exposure in the variable annuity product in that VOYA provides capital protection in an equity-like product. It is risk, but one that I continue to like because of my overall positive view on us equities (see previous blog posts).
Finally, there is the issue of the closed books (i.e. the "bad bank" that holds alt-a and other legacy assets from the financial crisis). Considering the great reversal of many of these former toxic instruments and the gains from last year, I do not think they are marked aggressively).
As such, is such a business trading @ ~0.5x book value in an industry usually => 1x book a compelling investment? This is not meant to be a full pitch, but rather a starting point for further thoughts.
P.S. Looks like I am not the only one looking into VOYA.
Thoughts?
Disclosure: I am long VOYA
(icon source: http://llaguno-alb.blogspot.com/2012/08/bad-bank.html)
Looks very interesting. What's your horizon for this company? Do you have a target price in mind where you'd like to exit, or is it in your portfolio indefinitely?
Book value is ~ 50/share, so that would be ultimate target in 1-3 years or so. Idea is that ING group, the parent currently owns 75% and needs to reduce to 50% by 2014 and I believe out by 2016.
interesting find
I bought this the first day it started trading and re-upped on the 2nd day. I think this is wildly mispriced for a few reasons:
1). Forced sale by the parent 2). The horrible optics of the Closed Block Variable Rate Annuity business line 3). Losses they took related to MBS write-downs in 2007-2009
The closest comp is PFG which trades at a premium to book. Management got a ton of warrants which don’t vest until $48.50 (2.5x the IPO price). I think it is a great deal for shareholders. Management gets 10% of the company if they can get the stock price up 250%. The CEO ran AIG’s US life insurance business (ALICO) and the COO oversaw AIG’s divestiture of non-core businesses following the crisis. They seem to be well-respected and sharp.
It has zero sell-side coverage at this point. Once the 30 day restricted window passes I’m guessing a lot of the banks involved in the underwriting will initiate with buys. The stock moved 6% on the BTIG/Barron’s notes and I think a slew of sell-side recommendations will be another catalyst.
I have a lot of notes of the CBVA run-off business but not enough time to type them all up. A big chunk of the losses relate to changes in lapse assumptions, expected equity returns, and expected levels of interest rates. The economics of these are kind of black-box but it’s a risk I’m willing to live with given the $6-7bn in reserve capital for the policies and overall cheapness of the company.
The retirement business is essentially the management of 401k’s/403b’s, etc. It is fee based, recurring, and has large secular tailwinds. The life insurance and asset management business lines are nothing remarkable but are priced as if they are horrible.
If I have more time I’ll post more notes but definitely recommend this as a place to look. Obvious risks are the CBVA, overall tightness in spreads right now (if they widen book value falls), and ZIRP going on forever. Still really like it though.
Also it’s not just that this is really cheap to book value, it’s a business that can grow book value via increasing ROE (stated goal of 11%-12%) and the use of NOL’s
I bought a few shares and a bunch of november calls late last week. The barron's article was a nice surprise.
what could be some limitations to this thesis?
A few are: limited data on the closed book annuity and legacy mortgage book and the fact that ing groep (the original parent) still has many shares to sell. The former could wreak havoc on "book value" if the underlying assets deteriorate further (though I feel that's unlikely). For the latter, the end of (indirect) govt ownership was a catalyst for aig, but the timing is not set.
Smart to buy when it started trading - as you said, it was a fire sale price. Not sure I would buy at $28; I think it's fine, just not the best deal in the sector.
Although the business mix is somewhat similar to PFG, PFG has that international element. Life insurance products are hot in LatAm and other EMs (NWLI is a great way to play the trend). I wouldn't count on VOYA trading at a P/B xAOCI >1 anytime soon, unless we see the sector as a whole return to pre-crisis valuations at the 1.5x book level.
I'd look at it like any other life insurer: P/B vs ROE, excluding AOCI. You need to adjust for the DTA and value of the CVBA block there.
As you said, it is pretty sensitive to markets, although hedging has improved; assuming rates/equities continue rising, there could be some upside.
Anybody still following this?
Yes, looks like that debt exchange coincided with new highs (though w/ mkt frothiness could coincidence).
Still wary of parent selling
Nice little bump today thanks to Greenlight
yes, I hope they discuss in q2 letter so we can compare theses
Architecto qui ipsa ab iure. Molestias aut quia molestias at qui ipsa ea.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...