Wednesday, 5 August 2015

Spin-off reprise: Voya Financial and NN Group

As I noted here earlier in the year:

'One of my more successful holdings over the last year has been Voya Financial another spin-off from ING (my success here encouraged me to buy NN Group, another spin-off from ING but only floated last summer in Europe...(which) I wrote up here'

All three companies in a wonderful display of insurance/asset management sector historical union reported today.  So how do I feel about Voya, still worth - as I noted in the link above - over US$50 a share?

'With the overhang abating then the required discount should also decline.  Book value is over US$53/share.  With a clearer path laid out to low teens RoE there really is no reason why the stock should not trade on x1 book...with a c. US$43 share price this still implies undervaluation.  

Of course a low interest rate and generally competitive world overhangs too but I am feeling no need to sell my Voya shares today.  In fact I have upgraded my valuation hopes to over US$50 a share'

Well the good news is that book value continues to move up and now stands at over US$56/share...

...and given this occurred with hopes of a clear move deeper into double digit RoEs...

...and positive flows across their key retirement markets then an above book value still seems reasonable to me.  

In other words with the shares trading in the US$45s today (with expectations maybe getting slightly ahead of reality as according to Seeking Alpha 'Voya Financial (NYSE:VOYA): Q2 EPS of $0.78 misses by $0.05.Revenue of $312M (-12.4% Y/Y) misses by $24.03M') I still see value into the early US$50s at least.  Still a buy even if ING will one day soon exit its remaining c. 20% stake (which actually will be taken once placed positively).    

The overhang for the Dutch listed NN Group is larger at 68%...but many of the underlying themes are similar. With very strong return on equity progression and - slipped into the last bullet point - an indication that the inaugural full year dividend is likely to be well over Euro1 in size i.e. getting on for a 4% yield which is not too shabby. 

Equally as impressive was the very successful expense reduction which has almost hit the 2016 targets already - no wonder the above dividend progression was so good.

 But that is not to say that everything is great.  The value of new business progression was modest identifying again that NN Group is probably more a cost cutting / dividend story than a high growth story.  Still at least it is positive...

As for the shares, they have made very solid progression since the spin-off and are trading at/around all time highs.  And they are still cheap trading on about x0.8 book for a H1 RoE of 11.8%.  Even giving a 20% discount for the overhang still suggests a theoretical fair value of around Euro33.  With a good dividend yield suggested for the full year NN Group also remains a keeper.   

Two spin-outs, still two strong holds/buys.

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