Wednesday, 4 November 2015

Spin-offs #1: NN Group and Voya

Regular readers will know I am a fan of spin-offs.  Two related postings on this theme inspired by results over the last few days.

Today Benelux financials behemoth ING Groep reported their third quarter results which also means that two recent spin-offs from the company NN Group and Voya also have reported.  My most recent report on these two names from a quarter ago can be found here.  Turning first to NN Group I concluded back then that:

'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'

Since that early August write-up the shares have actually fallen back from the US$29s before rallying in recent weeks back to this level.  Of course this represents a continued outperformance against the broader European indices.


So what was said today?  Well basically further progress.  Return on equity edged up further to now a 12% level for the first nine months as cost cutting continued...


...meaning with ING having shed more of their stake, Euro1bn of free cash having been generated in the first 9 months of the year (an annualised 13% free cash flow yield!) and getting on for a 4% dividend yield paid in the last year (plus a slightly larger buyback!) investors are being given income whilst waiting for the overhang to be reduced...down to just over 25% now. 


My Euro33 target noted above actually now appears a little ungenerous given the reduction in the overhang.  At prevailing - at worst - a solid HOLD. 

Voya is a little different however.  Back in August I noted:

'...with the shares trading in the US$45s today...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)' 

And how are the shares today?  Just below US$40...that's a pretty big fall since August.  


Well with a book value in the US$56s - and even applying an overhang discount - still gives a target price in the mid US$50s.  


So what could have gone wrong?  Try outflows for a start in the retirement and...


...investment management areas.  



Of course these outflows are only a modicum of the overall assets under management (e.g. for the retirement assets it is less than 2% of the total) but it does deserve watching.  Even with another 10% discount the stock still has 20% theoretical upside. 

Net net that sounds like a buying opportunity to me. 

Postscript - another reason for a technical miss by Voya in the Q3 financials was mortality as noted here.  Again this feels transitory and should be no impediment to buying the stock. 

Though Retirement and Investment Solutions accounted for 78% of Voya Financial's (VOYA -3.8%) Q3 pretax operating income, it was a 2nd consecutive month of elevated mortality in the Individual Life unit which caused the sizable earnings miss, writes BTIG's Mark Palmer.

The mortality ratio was more than two standard deviations above the expected level - the first time such an unfavorable variance has occurred since 2007, says management. The unit paid 35 claims of more than $1M during the quarter, totaling $65M. One year ago it paid 25 claims of more than $1M totaling $34M.

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