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American International Group (NYSE:AIG) continues to turnaround the company's once bleak future. On Tuesday, AIG's lockup expired on their 19% stake in AIA Group Limited. AIA Group Limited was a $20.5 billion initial public offering (NYSEARCA:IPO) on October 29, 2010. AIG management has stated during conference calls their intent to sell their $7.6 billion AIA Group Limited position. AIG has not issued a direct timeframe for the sale. AIG management, due to the lockup expiration, is planning to liquidate the AIA position in an orderly fashion.

I believe AIG is a buy up to the current book value per share. As of today's date, the price is $60.58. The book value is based upon a decreased AIG business model size with higher net margins and increased revenues predictability.


(Click to enlarge)

Valuation

The above chart highlights a 5 year valuation of $84.62. I believe this does not give credit to the share repurchases from the pending U.S. Federal Government sales. AIG's book value will continue to increase with a focused business model, and an active share buyback at 50% discount to book value per share.

U.S. Federal Government September AIG Sale

The U.S. federal government, with a 53% stake in AIG as of today, is expected to sell AIG shares this month. AIG management is expected to purchase part of the U.S. federal government allocation due to the book value accretive outcome. AIG's book value per share, currently $60.58, will increase if AIG management purchases shares at a 40% - 50% discount to the June 30 10Q book value per share.

Book Value Increases

AIG's book value has increased by 13% since December 31, 2011, through June 30, 2012. The company purchased $3 billion of AIG shares at $30.50 in early August. This purchase was performed when the current book value was 49.7% higher at $60.58.

AIA Group Limited Synopsis

AIA Group Limited has successfully operated in Asia since 1919. The company was the first Asia wide insurance company to go public. AIG's leader, Robert Benmosche, would likely not sell Asia life insurance assets unless AIG were in the process of a major turnaround.

Former AIG chief Maurice "Herb" Greenberg built AIG into the number one global insurance company. Herb lands on his own two feet. On a related insurance note today, Mr. Greenberg purchased part of a Turkish non life insurance provider.

Further AIG Catalysts

Credit Outlook is Stable

Moody's affirmed the ratings of American International Group senior unsecured debt at Baa1; affirmed the A1 insurance financial rating of Chartis; and the A2 insurance rating of SunAmerica. Chartis and SunAmerica are the core divisions within the new AIG complex.

Chartis and SunAmerica account for 90% of AIG's revenue streams. These are far more reliable and predictable income streams than the 2008 - 2010 swaps and derivatives on AIG's balance sheet.

SunAmerica's Growth Prospects

AIG has agreed with the Hartford Financial Services Group (NYSE:HIG) to acquire Woodbury Financial Services, Inc. Woodbury Financial is a leading independent broker dealer. Woodbury Financial Services will be under the SunAmerica's growth strategy. Hartford has clearly been focused upon improved operating results. Today, the company announced plans to sell its retirement plans business to Massachusetts Mutual Life Insurance for $400 million.

Airplane Leasing IPO

Mr. Benmosche has initiated steps to take the Air Leasing unit public or to sell outright. Price ranges vary between $6 billion to $8 billion. This cash infusion will provide accretive value to AIG in its movement to become smaller with higher profit margins.

Action

Robert Benmosche is intelligent and knows the insurance business. He has created the deep value stock that Dr. Benjamin Graham talked about in his books and lectures. The AIG investor has a proven CEO in Mr. Benmosche. The company is buying back shares at approximately 50% of book value per share.

The $7.6 billion in potential AIA share proceeds will result in further capital infusion. Management is driven to reduce the size the size of the company's business model. The focus is to emphasize high margin and profitable business models. Mr. Benmosche has delivered upon selling non core assets for cash infusion to increase book value per share.

I believe the stock is a buy up to the $60.58 book value per share. As the book value increases, the share price should continue to increase.

Disclosure: I am long AIG, long AIG warrants, long synthetic long positions (short puts and long calls). I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Deep Value AIG Is A 'Must Buy' Up To $60.58