Wednesday, 12 February 2014

Voya - still a strange name, still an interesting stock

Back in November I wrote a posting on Voya, the partially spun-out US arm of the Benelux banking/insurance giant ING whose corporate / profit focus (at the Q3 stage disclosed in November) is shown below:


In my report three months ago I noted that:

'Using the Q3 numbers out today, the underlying business produced a return on equity of just over 9% and the company is targeting 12-13% by 2016.  And the price:book value of the shares today?: x0.75...Now ING parent company does retain a 59% stake and they have been and will continue to cut this over time.  But this sort of multiple has taken a lot of that into account...The Voya share has done very well, adding over US$10 from its US$19 odd launch price in a short period of time.  The above analysis suggests that investors should ignore this sharp move over recent moves and build a position.  Watch especially for a break above US$32 into new high territory'

Well the shares did break above US$32 - and have stayed above that level in the interim period. 

This optimism seems well-placed judging by the initial earnings headline:

ING U.S. (VOYA): Q4 EPS of $0.75 beats by $0.05
So what were the other key factors in the release today?  Well FY13 return on equity was 10.3% which was another sequential improvement and the aforementioned 12-13% target was reiterated. 
Divisionally the key driver remains the retirement / annuities business which accounted for all the sequential change year-on-year in the Q4 results. 

In terms of specifics, in the Retirement division there was continued good flows...

...whilst in Annuities, the continued dropping of lower margin business combined with the further growth of custodial business drove the numbers forward.

If I look at Voya's book value per share it was US$43.65 at the end of December 2013.  An insurance company that sustainably generates a 10%+ return on equity is worth a US$43.65+ share price in my view.  The only adjustment in my view would be the continued overhang from the ING parent business who will periodically sell down their (current) 59% stake.  Even taking a 20% discount for this, Voya shares should trade at US$36+. 

Any placing by ING is clearly a specific opportunity but generally, on the basis of these numbers and taking into account the (slow) selling parent holder, Voya shares should be in the US$36-40 range. 

Voya: still a strange name, still an interesting stock.


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