Summary
- Voya has released its 2022 financial figures, maintaining a positive operating performance.
- Its recent acquisitions enhance its fundamentals, while its excess capital position is a strong support of an attractive capital return policy.
- Despite a strong share price performance in recent weeks, it still trades at only 9x forward earnings.
Voya Financial ( VOYA ) continues to trade at an undemanding valuation, even though it is taking the right steps to improve its business fundamentals and has relatively good growth prospects ahead, being therefore a good value play within the financial sector.
As I've covered in a recent article , Voya has made a significant business overhaul in recent years, but despite an improved profile it still trades at a relatively undemanding valuation. Since my last article, its shares have clearly outperformed the S&P500 index, but as the company has recently released its 2022 financial figures, in this article I analyze its most recent earnings and update its investment case to see if it's still a good value play within the financial sector.
Idea performance (Seeking Alpha)
Recent Earnings and Business Prospects
Voya has completed in 2022 its business transformation, divesting capital-intensive businesses and focusing its operations in segment with better growth prospects, such as asset management and workplace solutions.
These actions led to a strong excess capital position, which the company has returned in a great part to shareholders in recent months, and also to reduce balance sheet leverage. Indeed, Voya returned some $1.2 billion to shareholders during the past year, of which $750 million through share repurchases, 80 million in dividends paid, and $360 million was used to repay debt. Despite this sizable capital return policy, Voya's excess capital position was about $900 million at the end of 2022, which means that the company has a comfortable capital position.
Reflecting its improved operating profile, Voya has achieved strong earnings growth during the past year, given that its adjusted earnings per share of $7.41 represented an increase of 24% compared to 2021, above its own target of adjusted EPS growth between 12-17%.
This strong growth was supported by strong flows across its different businesses, with wealth solutions reporting positive net flows of $3 billion in 2022, health solutions annualized in-force premiums increased by 10.8% YoY to $2.8 billion, and even its asset management unit reported positive net flows of $1.1 billion during a tough year for capital markets.
This is a very strong operating performance, showing that Voya's fundamentals have clearly improved due to its strategic decision to focus its business in a few selected segments. This position was enhanced with the acquisition of the majority of Allianz's ( OTCPK:ALIZY ) U.S. asset management unit during 2022, plus the acquisition of Benefitfocus that was closed last month , a provider of cloud-based software solutions for consumers, employers, insurance carriers, and brokers. These transactions are part of Voya's current strategy of focusing on business growth rather than restructuring, which will improve its capabilities to offer a better customer service, improve efficiency in its Wealth and Health segments, and add administrative capabilities that would be hard to develop on its own.
From a financial perspective, its asset management combination is already bearing fruit, as Voya was able to retain some 95% of U.S. Allianz Global Investors and has increased assets under management by some $90 billion, which had a positive impact on its revenues and earnings during the second half of 2022.
Beyond the integration of this business, Voya also made some initiatives to improve margins during the past year, through the successful elimination of all stranded costs associated with prior divestitures, which is positive for a more recurring earnings profile over the long term. For the full year 2022, Voya's net income was $474 million, which compares to more than $2 billion reported in 2021, with the difference been explained in large part by the company's sale in 2021 of its life business. Its return on equity (ROE), a key measure of profitability in the financial services industry, was 7.7% in 2022 (vs. 24% in the previous year).
Due to strong volatility in its reported earnings, its adjusted earnings offer a better view of Voya's underlying performance, which amounted to $835 million after-tax, compared to more than $1 billion in 2021. This decline is justified by a tougher economic environment and weaker capital markets, which led to lower alternative investment income and decreasing fee-based margin from lower equity market levels.
Its organic capital generation was about $600 million in 2022, above its reported GAAP net income, which is above its own internal target. At the end of 2022, Voya's risk-based capital ((RBC)) ratio was 488%, considerably above its target of around 375%. Also, its debt leverage ratio of 30% was acceptable given its target of between 25-30% over the medium term, thus Voya does not need to reduce much its debt levels in the near future and can distribute a large part of its earnings to shareholders.
Capital (Voya)
This strong capital position also means that Voya can easily finance its recent Benefitfocus acquisition with its own resources and maintain an excess capital position at the same time. Due to this background, Voya expects to resume its share buyback program in the second quarter of 2023.
Regarding its guidance, Voya expects to achieve EPS growth of at least 10% year-on-year, but this figure is likely to increase to 12-17% YoY with the integration of Benefitfocus. This is justified by earnings accretion of the combined businesses, expecting to generate around $50 million in EBITDA from the integration, including expense synergies.
Regarding its dividend , Voya has recently declared a quarterly dividend of $0.20 per share, payable next March, unchanged from its previous quarter. At its current share price, Voya offers a dividend yield of about 1.1%, which isn't particularly impressive. This is not expected to change in the near future, as the company's capital return policy should be mainly directed to perform share buybacks rather than paying a higher dividend.
Going forward, according to analysts' estimates, Voya is expected to maintain a positive operating momentum, given that its revenue should grow to about $6.8 billion in 2023 (+9.7% YoY), and report a net income of around $830 million, supported by higher fees in its wealth and asset management, which are benefiting from a better investor sentiment in the first couple of months of this year.
Conclusion
Voya has made a significant business overhaul over the past decade and is now focused on business growth rather than restructuring. Its recent acquisitions seem to improve its fundamentals and Voya's operating performance has been positive in recent quarters. Despite its good share price performance in recent weeks, it is still trading at only 9x forward earnings, which seems to be quite low for a company that is growing earnings at double-digits on a recurring basis.
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Voya Remains An Interesting Value Play