Life's Decisive Moves Drive Growth And Margins Despite Market Challenges

Key Takeaways

• Launching new products and optimizing the investment portfolio have accelerated revenue and earnings growth for Dai-ichi Life.
  
• Enhanced U.S. operations and strategic acquisitions, despite initial integration costs, indicate potential revenue growth and improved sales efficiency.
  
• Inflation-driven deterioration in Protective's loss ratio and the integration of ShelterPoint may reduce earnings and impact overall margins and profits.

Catalysts

Through its subsidiaries, engages in the provision of insurance products in Japan, the United States, and internationally.

• Dai-ichi Life has launched new products that have driven a significant recovery in sales. This is likely to positively impact revenue and earnings growth.
  
• International operations, specifically the acquisition of ShelterPoint by Protective, are expected to contribute to revenue, although initial integration costs may delay profit contributions, impacting future earnings positively.
  
• Dai-ichi Life is experiencing a positive trend in sales representatives' numbers for the first time in three years, after addressing a previous fraud incident, which should improve sales efficiency and revenue growth.
  
• The company has been strategically replacing bonds to optimize its investment portfolio, mitigating losses while generating capital gains, leading to improved net margins and potential earnings stability.
  
• Using high U.S. interest rates to update annuity products, Protective has improved its performance, indicating potential revenue growth and increased profitability in its U.S. operations.

Dai-ichi Life Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Dai-ichi Life Holdings's revenue will grow by 1.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 3.8% today to 3.5% in 3 years time.
• Analysts expect earnings to reach ¥380.7 billion (and earnings per share of ¥440.65) by about November 2027, down from ¥396.5 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as ¥419.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.8x on those 2027 earnings, up from 8.8x today. This future PE is lower than the current PE for the JP Insurance industry at 13.7x.
• Analysts expect the number of shares outstanding to decline by 2.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.38%, as per the Simply Wall St company report.

Dai-ichi Life Holdings Future Earnings Per Share Growth

Risks

• The initial cost of integrating ShelterPoint into Protective may lead to reduced profits over the next few years, impacting overall earnings.
  
• Losses from the sale of Japanese Government Bonds (JGBs) and adjustments for foreign currency bonds could affect net margins if offsetting gains are not maintained.
  
• Increased claim payments and changes to the definition of adjusted profit at TAL may influence overall profit calculations, affecting earnings.
  
• Protective's asset protection business faces a deterioration in the loss ratio due to inflation, which could negatively impact revenue and margins.
  
• The expected extraordinary loss from the second career special support framework in fiscal year 2024 could impact earnings, depending on participant numbers.

Valuation

• The analysts have a consensus price target of ¥4447.5 for Dai-ichi Life Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥5340.0, and the most bearish reporting a price target of just ¥2300.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ¥10926.3 billion, earnings will come to ¥380.7 billion, and it would be trading on a PE ratio of 11.8x, assuming you use a discount rate of 5.4%.
  
• Given the current share price of ¥3799.0, the analyst's price target of ¥4447.5 is 14.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.