Author Topic: BHF - Brighthouse Financial  (Read 14138 times)

Gregmal

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Re: BHF - Brighthouse Financial
« Reply #30 on: February 15, 2019, 05:50:11 AM »
I dont really know what to think of Einhorn anymore. He clearly just lost it. Or maybe he never had it. The other day when BHF beat and was up decently I thought, OK maybe this is where the pendulum swings back the other way and his luck starts changing... Oh well, lol. He already sold. Meanwhile, Ackman is on fire again. I did always feel he was the only real talent out of the three stooges(Ackman, Einhorn, Tilson)...


Foreign Tuffett

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Former Teldar Paper Vice President

DTEJD1997

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Re: BHF - Brighthouse Financial
« Reply #32 on: February 28, 2019, 12:21:37 PM »
Hey all:

BHF's CFO leaving is not bullish...question is just how bad it is?

This thing does seem cheap though.

Earnings of a bit of $7/share.  Analysts seem to think it is increasing next year or two.

Book value is a bit over $122/share.

How good is that book?  Good chance it takes a hit.  How big a hit?  $10/share?  $20/share $40/share?  More?  Even if book gets chopped by $60/share, that would be something like $700mm. 

An insurance company with a SOLID $65-$70 book value certainly could earn $5-$6/share.  If they pay out 1/4 to 1/3 in dividends  that could be $1.25 to $2/share.

A $2/share dividend would give this thing a good yield.  A $3/share dividend would give it a GREAT yield.  That alone would attract a lot of investors.

The stock may have problems, but at first glance it is selling for "silly" cheap levels.

Spekulatius

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Re: BHF - Brighthouse Financial
« Reply #33 on: February 28, 2019, 03:56:17 PM »
Hey all:

BHF's CFO leaving is not bullish...question is just how bad it is?

This thing does seem cheap though.

Earnings of a bit of $7/share.  Analysts seem to think it is increasing next year or two.

Book value is a bit over $122/share.

How good is that book?  Good chance it takes a hit.  How big a hit?  $10/share?  $20/share $40/share?  More?  Even if book gets chopped by $60/share, that would be something like $700mm. 

An insurance company with a SOLID $65-$70 book value certainly could earn $5-$6/share.  If they pay out 1/4 to 1/3 in dividends  that could be $1.25 to $2/share.

A $2/share dividend would give this thing a good yield.  A $3/share dividend would give it a GREAT yield.  That alone would attract a lot of investors.

The stock may have problems, but at first glance it is selling for "silly" cheap levels.

BHS’s annuity business has low returns on equity and isnalso volatile, as they are dependent on equity and income market performance. They have hedges in places to limit exposure but these are expensive end lead to Wilde GAAP earning swings. I think internally these insurance use NCAV as a guideline, but it’s difficult to verify these valuations as an investor.

What I don’t get is what these insurance companies do when volatility goes through the rough and hedging become very expensive due to high put premiums. Do they use a collar so it even out with proceeds from calls? Some of these insurers got into trouble during the financial crisis - insurers with long term liabilities are always prone to earning quality issues, because it’s basically accrual accounting.
« Last Edit: January 26, 2020, 05:26:59 AM by Spekulatius »
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Lakesider

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Re: BHF - Brighthouse Financial
« Reply #34 on: January 25, 2020, 01:40:38 PM »
Anyone else following this? Low single digit P/E. Earnings have been tested this year by ups and downs in markets and have held up fine. Successfully increased the capital buffer, returning capital quicker than guided (1% a month, to continue next year). VA sales have been increasing quickly, equity markets have performed much better than expected.

I've bought some Jan 21 $45 calls. It just seems so cheap...   :-\




writser

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Re: BHF - Brighthouse Financial
« Reply #35 on: January 26, 2020, 02:47:24 AM »
I saw the pitch in the Greenlight Q4 letter (I guess that's where you saw it too?). Seemed compelling. Hope I'm allowed to share the excerpt here:

Quote
Brighthouse Financial (BHF) – Long

4.0x P/E on 2020 consensus adjusted earnings, 31% of book value

This remains one of the most perplexing investments we have ever made. Although the shares “recovered” 29% in 2019, the underlying value of the business also improved, so much so that the shares are arguably cheaper now than they were a year ago.

BHF’s main business is variable annuities. Customers deposit funds into segregated accounts, which are then invested in equity and fixed income funds, and pay BHF fees in exchange for minimum performance guarantees. The biggest risk BHF takes (and must hedge) is that equity markets underperform and the company has to make good on these minimum guarantees. When markets do poorly, policies can become “upside down,” meaning the guaranteed policy benefits exceed the value of the assets in the separate accounts. Policies written with assumptions that are too optimistic cause trouble for variable annuity writers, as was the case from 1998 to 2011 when the S&P 500 index was essentially unchanged.

In 2019, the S&P 500 returned 31.5%, bringing its return since 2011 to 203%, or almost 15% annualized. Separate account returns have been vastly exceeding the underwriting assumptions, making it very unlikely that many variable annuity policies are presently upside down. We posit, if the policies are performing this well, why should the business have any discount to book value?

In nearly every analyst report (1 buy, 9 holds, 4 sells), potential investors are given stern reminders that BHF is “sensitive” to equity markets. Analysts seem to be ignoring (or in a couple cases underplaying) that this sensitivity goes both ways. Since none of the analysts have delved into what happens to BHF in a strong stock market, it’s no surprise that they don’t recommend the stock.

BHF’s annual report provides certain sensitivities showing intermediate-term cash flows from the variable annuities segment based on hypothetical capital markets scenarios. We estimate that the 31.5% gain for the S&P 500 incrementally added at least $2 billion to BHF’s distributable cash flow over the next four years. BHF’s entire market capitalization is only $4.2 billion. The company will release new sensitivity tables next month.

In 2018, the company announced that it would return $1.5 billion to shareholders by the end of 2021. At that time, management was clear that its targets were sensitive (in both directions) to capital markets. As a result, we believe there is an excellent chance BHF will exceed its capital return targets. Even at current levels, the company is buying back stock at a rate of over 1% of the company each month. Given the discount to book value, the buyback alone is causing book value per share to grow by 10% per year, in addition to the company’s earnings.

The bears’ latest bugaboo is that around 2022, BHF will be subject to a change in accounting, which could lead to a “sizable” non-cash charge and reduction of book value. We note that the shares already trade at only 31% of book value and that any write-down would actually have a positive impact on future earnings. We estimate that every $10 per share write-down will improve annual earnings by $0.65 per share. By our estimates, even with a $3 billion charge, book value per share is likely to grow at a double digit rate over the next 5 years and adjusted earnings per share is likely to grow even faster than book value per share. BHF shares could double from here and still be absurdly cheap.

I put it on my to-do list. Doubt that I'll ever do something with it though. For me personally, analyzing the liabilities, and in general, figuring out the profitability and prospects of this company and the risks involved seems way too difficult, so I would basically be the sucker hoping that book value is a good proxy for value and waiting for a rerating. I guess that was true with BAC and AIG too a few years ago though.
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@thewritser

Munger_Disciple

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Re: BHF - Brighthouse Financial
« Reply #36 on: January 26, 2020, 10:45:53 AM »
Quote
Doubt that I'll ever do something with it though. For me personally, analyzing the liabilities, and in general, figuring out the profitability and prospects of this company and the risks involved seems way too difficult, so I would basically be the sucker hoping that book value is a good proxy for value and waiting for a rerating.

I tried very hard to understand their balance sheet about 9 months ago & I gave up after reading their 10Ks and 10Qs. I realized I have no clue how to assess their liabilities and risks of a disaster. My own limitations likely played a role but I don't think anyone can truly understand the business risks in this type of a company due to its black box nature. You even have the possibility that the management doesn't fully understand the risks it is taking. If others have a better handle on their liabilities and how to evaluate their earning stream, it would be very helpful if they post a detailed analysis.

Lakesider

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Re: BHF - Brighthouse Financial
« Reply #37 on: January 26, 2020, 12:49:11 PM »
Yeah I've ripped this off from Greenlight, cant really add anything meaningful. Just looking at the cashflow and capital returns if things keep going this is so cheap. They hedge against major downturns so should survive.

JRM

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