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Posts Tagged ‘GE Life’

Is GE Life fairly valued?

In Uncategorized on 03/05/2010 at 4:40 am

Based on friday’s closing price of $15.66,  GE Life is trading at  1.18x 2009 ‘s  Embedded Value (the sum of net assets plus the current value of future profits from existing policies) of $13.167 a share. I have argued that based on what PRU is paying for AIA, GE Life’s value should be unlocked by OCBC http://atans1.wordpress.com/2010/04/26/ocbc-value-to-be-unlocked-ii/

According to FT’s Lex, when an insurer is sold at  EV, this means it is assumed it will write no more new business, nor make any gains on its investments.  That is why most recent deals in mature markets have been completed at about 1.2 times – a small premium for control, for cost synergies, and for growth potential. The 1.69 times that the UK insurer is proposing to pay seems bullish, given that AIA’s two biggest markets by gross written premiums are Hong Kong and Singapore, already overrun by agents.

Then there’s the question of what the new owner will be allowed by regulators to keep. Some of the licences AIA holds were acquired decades ago, under old rules on foreign ownership. Factor in forced disposals, likely to be at multiples below 1.69, and the effective price for the remnants could become even higher. Korea Life, another insurer talking up an Asian growth story, recently went public at one times embedded value. Japan’s Daiichi Mutual, ditto, went at 0.6 times.

So if FT is right, the Pru is overpaying for AIA, and by implication GE Life at $15.66, is priced about right at about 1.18x EV. And that I talked nonsense about how much it was worth to OCBC, if sold.  If Pru’s shareholders vote against the deal, I talked rubbish.


DBS: How to get M’sian exposure

In Banks on 27/04/2010 at 5:22 am

A flaw in DBS’s Asian strategy is the lack of  something decent in Malaysia: how can one be a leading regional bank without a sizeable Malaysian operation. As Citi, HSBC, and Standard Chartered; and OCBC and UOB know, banking in Malaysia is very, very profitable.

DBS’s FTs blotched a takeover bid for OUB about 10 years back, which would have given it a sizeable retail and SME presence in Malaysia: something that OCBC and UOB have. UOB took over OUB and in the process enlarged its Malaysian presence.  And the no FTs,  hereditary principle looked better than the FT policy.

So, DBS should look at taking over OCBC because of its sizeable Malaysian banking business: 25% of pre-tax profit in FY2009.

Now the rest of OCBC’s banking operations don’t fit into DBS because of the overlap in Singapore, HK, China, Indonesia and Thailand. Both banks have crummy operations in the last three countries, while in HK, DBS has a sizeable operation while OCBC has a small operation. As for life insurance, DBS has eschewed the bankassurance model that OCBC has adopted via its control of GE Life. So unless the FTs now want to do bankassurance, it has to sell the 87% of GE Life that OCBC has.

So one alternative is for DBS should bid for OCBC, retain its Malaysian operations and sell off its banking operations in Singapore and Asian other countries  to ANZ Bank. As for the GE stake, if ANZ Bank is not interested, try MetLife and Zurich. http://atans1.wordpress.com/2010/03/09/ocbc-more-on-ge-life/

Or persuade ANZ Bank and an insurer to make a three-way bid, with the intention of dismembering OCBC ala what happened to ABN Ambro when RBS, Fortis and Santander bid for and dismembered ABN Ambro. True RBS and Fortis promptly went bust and had to be nationalised, but history does not necessarily repeat itself. And if ANZ Bank wants GE Life, make a two-party bid.

OCBC: Value to be unlocked II

In Banks on 26/04/2010 at 4:37 am

Sometime in March, I analysed how valuable GE Life is to OCBC based on the price that Prudential is paying for AIA. I said  (now revised post to take account of the embedded valued -EV – revealed in the just released 2009 annual report) that the value to OCBC of its GE stake (based on the AIA valuation that the Prudential is working on) is S$3.15  share or S$10.5 billion in total. http://atans1.wordpress.com/2010/03/08/ocbc-value-to-be-unlocked-cash-returned-to-shareholders/

But I doubted that the value would be unlocked given that without GE Life OCBC would be only an SME bank its pretensions in private banking and investment banking notwithstanding.

http://atans1.wordpress.com/2010/03/17/ocbc-reward-for-avoiding-balls-up/
http://atans1.wordpress.com/2010/04/13/ocbc-close-down-the-investment-bank/

But given the rumours that OCBC is on ANZ Bank’s target list, who knows except the controlling shareholder of OCBC whether value will be unlocked.

Tomorrow I will discuss why DBS should organise a consortium to takeover and dismember OCBC.

OCBC: More on GE Life

In Uncategorized on 09/03/2010 at 5:39 am

OCBC mgt could also try MetLife of the US. Metlife is buying AIA’s sister company, Alico, from AIA for a reported US$15.5 billion.

Alico has Asian insurance operations in Japan, Pakistan, Bangladesh and Nepal. Yes thaz all.  Buying GE Life can add S’pore, M’sia, Brunei, Indonesia and China (the last two admittedly smallish, but still better than Nepal or Pakistan. Both are almost failed states.)

And Zurich Financial Services Group which together with Axa and Allianz according to Reuters are the European insurers looking for a bigger slice of Asia’s high-growth markets considering  unsolicited bids for ING’s Asian businesses

Reuters reports further that, “Analysts say the AIG sale supports the valuation of ING’s businesses and that ING will be able to exit insurance at book value of around 16 billion euros  or more before the end of 2013, by when it must sell the business … UBS research analysts put proceeds of a divestment of the Asian business at 5.6 billion euros [US$7.6 billion]… ‘ING’s Asian business is not the likes of AIA, but it is good. I thought we could see some unsolicited bids even before the Prudential deal was announced,’ said a second investment banker who asked not to be named.

“ING, splitting off its global insurance operations as part of a restructuring deal mandated by the European Union, has made clear since late October that it preferred an IPO rather than a trade sale for the insurance unit … made no secret of the intense trade interest in the business, with chief executive Jan Hommen famously saying he had to use ‘hands and feet’ to count all the suitors who had called him.”

I doubt Axa would be interested in GE Life or ING Asia as it is in the midst of trying to privatise Axa Pacific which is listed in Oz Land.  The latest bid by NBA is worth US$12 billion. NBA will keep the Oz operations, and sell to Axa the Asian operations.

OCBC: Value to be unlocked, cash returned to shareholders

In Investments on 08/03/2010 at 5:41 am

[Note on 26 April 2010 11.30 am, this piece was updated as the 2009 annual report was made available on website]

If OCBC mgt wants to unlock value and return cash to shareholders, this is how to do it.

First by reading the FT. “Prudential, trading at roughly 1 times embedded value, appears to be overpaying by offering 1.7 times EV for a business [AIG]with lower-quality profits. The valuation appears less outlandish, however, when compared with prevailing multiples in Asian markets of about 1.7-1.8 times”. EV means embedded value.

At its present share price (S$15.90), OCBC’s GE Life is trading 21% above its 2009 embedded value because GE LIfe’s free float is tiny: OCBC has 87% of GE Life.

At 1.7 X EV share price shld be 22.35 or 41% up.

And in 2009, AIA had 5% growth at operating level. Based on GE’s annced results, GE’ s is several times that. So given GE life’s smallish size and profitability, 2 X EV would be fair (even taking into account its very weakish presence in China: but then it is building up mkt share in Indonesia) .   At 2 X embedded value, share price is almost $26.30 — 65% up.

OCBC mgt:  Time to call, Allianz or Aviva? Or Temasek? That bull on Asian financial stocks.

After all, OCBC  can keep the bankassurance model (OCBC retains exclusivity in branch selling insurance where it has a decent branch network) ), and can buy shares in an insurance co that is buying GE Life (to participate in growth of insc biz). And remember OCBC has no access to GE Life’s cash flow. It can only equity account GE Life.

The sale would bring in around S$10.5 billion in cash to OCBC or $3.15 a share.

But I doubt whether mgt or the controlling shareholder would want to do this deal. The downside is that OCBC would shrink and be smaller than DBS once shorn of GE Life. Its engine of growth would be gone and it would be a takeover target. So long term, one could argue that deal would be bad for OCBC.

Still if I were the OCBC Lees, $2.8 billion(assuming all the proceeds are paid out)  is not to be sneered at.

Wondering why writing abt this fantasy deal? Showing off that my CF skills as gd as my writing skills. Hoping that sumeone will contact me offering me some freelance analytical work instead of word spinning work. Here’s hoping!

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