Current trading in the grey market suggests life assurance group Standard Life will float at around 240p on July 10th; that price looks pretty attractive.
Standard Life, Europe's largest mutual life assurer, is due to float on July 10th, and it looks like the price will be pretty attractive.
Standard's indicative price range is 210p to 270p and current grey market trading at Cantorspreadfair suggests that the float price could be around 240p. (The actual float price will be announced on Friday.)
Current holders of with-profits policies with Standard Life are set for a nice windfall and will own the majority of shares in the company immediately after the float -- just under 1.5bn shares.
Holders of other Standard Life products had the chance to buy shares at a 5% discount to the float price, but sadly, the deadline for applications has now passed. But if you're going to receive preferential or windfall shares, I think you should seriously considering hanging on to your shares.
Here's why:
Life insurance companies such as Standard Life are often valued on the basis of their Embedded Value (EEV). This is a combination of adjusted net asset value and the present value of future profits. At the end of last December, Standard Life reported that its EEV was £3.74bn. The float is expected to raise around £1.1bn for the company, taking the EEV to around £4.85bn.
With around 2bn shares in issue, that means the per share EEV is in the region of 242p -- close to the current grey market share price.
So what?
Traditionally, if a life assurer trades on a multiple of just one times EEV, it's seen as cheap. Prudential
(LSE: PRU)
, for example, currently trades on a multiple of around 1.5 while Aviva
(LSE: AV.)
is on a multiple of 1.3.
Of course, you could argue that Standard Life deserves to have a low multiple as much of its business is weak -- especially its loss-making health and European operations. The likes of Prudential deliver a higher return on their embedded value than Standard.
On the other hand, Standard may be able to deliver significant growth thanks to its SIPP and "wraps" businesses. (Wraps are web-based products that allow financial advisers and some investors to view a portfolio of investments.)
What's more, if you're going to be allocated shares and you hold them for a year, you'll receive a 5% top-up to your holding next summer, and you'll also be paid a 5.4p dividend next May. So if Standard's share price held steady at 240p over the year, you'd still make a nice return.
And there's a chance that the share price will do better than hold steady, at least in the short term. That's because the institutions may own as little as 10% of the company on flotation -- although that number depends on how many shares are taken up by preferential rights holders. If the institutions do end up with only 10%, the share price go up as fund managers try to build up their stakes.
What's more, savings and investment should be a growing industry in the long-term. That growth could underpin the share price in the long-term.
So, in summary, if I had windfall or preferential shares, I'd probably hang on to them for at least a year. And if the share price falls below the 240p mark, I might even be tempted to buy on the open market.
More:
Standard Life Windfalls Cut | Standard Life: The Float Is On!
