AXA Asia Pacific Holdings (AXA) Update

Submitted by Jim Thesiger on 5 June, 2008 - 13:57

AXA Asia Pacific Holdings (AXA) has maintained neutral rating and has a share price target of $6.50 from Australian stockmarket analyst Macquarie Research Equities.

AXA Asia Pacific (AXA) Bulking up while slimming down

Event: Buys financial planners, sells closed annuity portfolio:

AXA today announced it has agreed with CGF to (1) purchase CGF's financial planning business for $150m (350 advisers, $12bn FUAdvice, $2.1bn FUAdmin) on a Jun08E PE of 14.9x, completion 30 June; (2) sell its closed immediate annuities portfolio ($1.3bn) for $50m, completion early FY09E, subject to regulatory OK.

Impact: EPS neutral FY08E, small positive FY09/10E:

Our estimated EPS impacts are in line with company guidance. The negligible impact on FY08E earnings reflects interest expenses offsetting wealth management earnings, while in latter years increased scale in financial planning and regulatory capital release (c$110m) more than offset forgone annuity earnings and higher interest costs. As we have not adjusted our forecasts for 1H08E market movements, we still consider there to be slight downside risk to our numbers.

Action: Deal makes sense, for both parties:

For AXA, the benefits include a reduced regulatory capital burden, lower maintenance spend and operation risk on a closed product line. In addition, the group should benefit from increased scale in financial planning, where all firms are having difficulty boosting planner numbers in this fast growing industry.

Valuation: maintain Neutral rating and $6.50 price target

Our price target is SOTP based. Opportunities: (1) strong capital position, (2) scale player in domestic financial planning, (3) improving ROE, (4) exposure to Asian growth. Risks: (1) investment market leverage, (2) mid-scale domestic wealth mgmt business, (3) domestic NBI sluggish, (4) below-system Hong Kong growth.

ASX Limited. ASX.AX. / Sell in May and go away?

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