Seeking Alpha
Long/short equity, special situations, value
Profile| Send Message|
( followers)  

Voya, formerly known as ING US (VOYA) made its public debut on May 2. Shares of the retirement, investment and insurance company ended the first trading day with gains of 9.7% at $20.84 per share after seeing a weak pricing of its public offering.

The Public Offering

Voya is a leading retirement, investment and insurance company in the US with approximately 13 million retail and institutional clients. The 7,000 employees want to make sure that Voya's clients have the most secure retirement possible by offering a range of solutions including saving accounts, Individual Retirement Accounts, brokerage accounts and life insurance services, among others.

Voya sold 64.16 million shares for $19.00 a piece. The company itself sold 26.66 million shares to the public, thereby raising $506.5 million for the firm. The remainder of the shares were sold by selling shareholder ING Groep (ING). The public offering values the equity of the company at $4.88 billion.

Despite the jump in Thursday's trading session, the offering has not been a success. The offer price was set below the preliminary $21-$24 price range set by the firm and its bankers. Despite positive price action on Thursday, shares are still trading below the low end of the preliminary trading range.

Some 25% of the total shares outstanding were offered in the public offering. At Friday's closing price of $20.67, the firm is valued at $5.31 billion.

The major banks that brought the company public were Morgan Stanley, Goldman Sachs, Citigroup, J.P. Morgan, Credit Suisse and Bank of America/Merrill Lynch, among others.

Valuation

Voya holds dominant market positions in the U.S. financial industry. Its retirement solutions have $116.6 billion assets under management, with another $213.7 billion assets under administration. The investment management business looks after $181.8 billion in client assets while the insurance business ranks number 5 and 17 in term, and universal life products, respectively.

For the year of 2012, Voya generated annual revenues of $9.62 billion, down 1.1% on the year. The company reported a net profit of $611.2 million for the year, which compares to merely $102.8 million in the year before. Net income attributable to shareholders, in that case ING Groep, came in at $473.0 million.

The company operates with a large $216.4 billion balance sheet, of which $4.2 billion is short- and long-term debt. The company, which was a wholly owned subsidiary of ING, plans to use the proceeds from the public offering to reduce debt, thereby bringing its capital structure more in line with its competitors.

Friday's valuation values Voya's equity at 0.55 times annual revenues, 9 times 2012's net profit, and 11 times 2012's profits attributable to shareholders.

Investment Thesis

As noted above, the public offering of Voya has been quite a disappointment. Shares were offered 15.5% below the midpoint of the preliminary offering range, and are currently exchanging hands at $20.67 per share, trading some 8.1% below that level.

The offering was essentially a forced sale. As a pre-condition to receive state support during the financial crisis, ING was forced by the European Commission to submit a restructuring plan, which includes the divestiture or sale of Voya. In the public offering, ING sold some 14% of its holdings in Voya thereby raising little over $700 million, which can be used to pay down state support. By 2016, ING should have sold all the shares in Voya. Since the bailout back in 2008, ING has sold a range of assets to raise $26 billion so far.

So the main question is: does the forced sell at attractive valuation multiples offer a great chance for investors with shares trading at less than 50% of their book value?

Investors were hesitant to participate in the offering for some reason. The company announced that hedges to protect against falling stocks and annuities resulted in a net loss of between $190 and $230 million in the first quarter. The company stressed that operating earnings came in at a solid $270-$290 million.

The transition from ING U.S. to Voya will furthermore lead to incremental expenses of $40-$50 million in the coming two years, as the company completes its rebranding strategy. The $0.01 quarterly dividend, which the company announced, for a mere dividend yield of 0.2%, is not too convincing as well. The company is still controlled by ING and becoming a completely independent unit will take some time as Voya still has to issue more debt to repay $500 million in intra-company loans as well as other borrowings from ING.

Shares do offer appeal at these discounted levels, as ING is a forced seller of its U.S. unit. Despite the concerns about the re-branding, the selling pressure from ING and the poor dividend yield, investors might take a gamble and buy a value stock at fair levels.

Source: ING's Voya Unit Offers Value After A Disappointing Public Offering