Author Topic: BHF - Brighthouse Financial  (Read 5737 times)

JRM

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BHF - Brighthouse Financial
« on: May 26, 2018, 06:42:20 AM »
I noticed Einhorn has BHF as a 14% position in his equity portfolio, so I gave it a closer look.  There are some good write-ups out there, but the basic premise is this:

-forced spinoff from MetLife to avoid SIFI designation (too big to fail)
-runoff annuities to be replaced by new products.
-discount P/B
-current price is lower than Einhorn's cost basis
-will return capital to shareholders starting in 2020 after building a larger cash buffer

It seems like they should also enjoy the advantages of rising interest rates that other financials will see.

Has anyone else taken a look at this?


Spekulatius

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Re: BHF - Brighthouse Financial
« Reply #1 on: May 26, 2018, 07:14:15 AM »
I actually think I would be more comfortable buying this stock, when Einhorn were short. His track record with life insurance is bad - he lost quite a bit of money in Delta Lloyd.  I donít think he or his analysts understand the business very well.

BHF ticks some value boxes. Tangible book is 2x the current stock price (>$100/share), adjusted earnings are $8-9/ share according to management.  But I am not sure what these adjusted earnings are worth, because GAAP earnings so far were consistently very negative.

BHF should benefit from higher interest rates,  it they also have quality to a bit of interest rates hedges in place, so I am not sure when and how this works out. We could potentially looking at huge book value losses there, but I donít understand their hedge book well. Their equity is ~$14.5 and their balance sheet it $225B total, so the notional leverage is 15.5x.

I have seen that they replace their traditional annuities with Shield annuities, which require less hedging and transfer more risk to the policy owners, but I also wonder how attractive these Shield annuities are in todayís enivonrment. Also, most of their book are still under the old structure and will take decades until they are run off.

My other concern is that MET actually knew what they were doing when they spun this off and created a toxic dump of undesirable assets, that will blow up when they are not liable any more for fraud-full conveyance.
To be a realist, one has to believe in miracles.

JRM

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Re: BHF - Brighthouse Financial
« Reply #2 on: May 26, 2018, 10:19:30 AM »
I never like to look at adjusted EPS or EBITDA numbers, but I think it makes some sense with a spinoff that is experiencing one-off charges related to becoming a standalone company (establishment costs).  That's according to the CFO during the last conference call.

The fact that they are hoarding cash ($3 billion by 2020 above CTE95 levels) makes me think management feels less secure about their book than what they otherwise indicate.  Now is the time to manage it, though. 

Ultimately this is a spinoff and a company in transition.  I don't think its possible to understand the entire balance sheet for a large financial like this.  I guess that's where a margin of safety comes in if you can find a reason for why a margin of safety should exist at all.

Lakesider

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Re: BHF - Brighthouse Financial
« Reply #3 on: May 26, 2018, 01:24:23 PM »
My understanding is they are hoarding cash due to upcoming VA reform. I inferred they were eager to get that sorted and start returning capital.


CorpRaider

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Re: BHF - Brighthouse Financial
« Reply #4 on: May 27, 2018, 06:47:52 AM »
Ditto on that understanding.  I put it on watch list.  Mentioned it a little in one of my Einhorn posts.

JRM

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Re: BHF - Brighthouse Financial
« Reply #5 on: May 30, 2018, 09:17:11 AM »
The following was included in a recent MetLife press release:

Quote
MetLife intends to divest its shares of Brighthouse Financial, Inc. common stock as soon as practicable and is considering a variety of transactions to do so. The company expects to complete the divestiture prior to the end of 2018 and does not expect the structure of any such transaction to affect its plans to repurchase shares of MetLife, Inc. common stock in 2018.

crastogi

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Re: BHF - Brighthouse Financial
« Reply #6 on: May 31, 2018, 11:21:58 AM »
The following was included in a recent MetLife press release:

Quote
MetLife intends to divest its shares of Brighthouse Financial, Inc. common stock as soon as practicable and is considering a variety of transactions to do so. The company expects to complete the divestiture prior to the end of 2018 and does not expect the structure of any such transaction to affect its plans to repurchase shares of MetLife, Inc. common stock in 2018.

So one should be on the lookout for more selling pressure?

CorpRaider

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Re: BHF - Brighthouse Financial
« Reply #7 on: June 02, 2018, 03:27:03 PM »
Barron's article pitching LNC, which I used as the comp in my quick post about BHF.  BHF = ditto; even cheaper, probably a slicker product with the Shield Annuities...but more hair due to spin off financials, inability to return capital for a bit longer, and lack of clarity regarding MET's reserve disclosures of late.  Looked at LEAPs on BHF.  Premiums seem high.

Probably won't do anything....getting infected with this quality, high ROIC, moat stuff from watching all these Berkshire videos.  haha.

Foreign Tuffett

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Re: BHF - Brighthouse Financial
« Reply #8 on: June 13, 2018, 05:44:29 AM »
MET sure was in a hurry to offload its BHF shares, even with the shares at 52 week lows. I interpret this as either (1) MET being uninterested in maximizing shareholder value or (2) MET being convinced BHF is an absolute garbage barge of poorly underwritten variable annuities.

https://www.brighthousefinancial.com/newsroom/brighthouse-financial-inc-announces-secondary-common-stock-offering/

Here's a solid Seeking Alpha article that lays out some of the possible risks of their large variable annuity book (no affiliation with the author).

https://seekingalpha.com/article/4179284-brighthouse-financial-attractive-short-market-hedge

BHF is such a black box, and there are so many long tail risks....I've been unable to ascertain if it's a good deep value opportunity, or a disaster waiting to happen.

JRM

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Re: BHF - Brighthouse Financial
« Reply #9 on: June 13, 2018, 03:13:26 PM »
With so many companies buying back shares at 52 week highs it doesn't seem too surprising to see MetLife selling BHF at 52 week lows.  Perhaps they know something insightful, maybe they are just in a hurry to reduce debt and buy back shares.

With BHF raising $3 billion of cash above the required CTE95 level, my first thought was the book is garbage; at least for a little while.