Annuities Beat Facebook in Japan Post Insurance IPO

The first-day gain of 56 percent leaves the company looking pricey.
At Closing, February 16th
177.36 USD

Insurance premiums, post offices, old people -- sounds pretty boring, right? Think again:

Japan Post Insurance just had the ninth-biggest major IPO ``pop'' in developed countries since 2000, according to data compiled by Bloomberg. While Alibaba rose a puny 38 percent on its first day of trade and Google edged up 18 percent -- let's not even mention Facebook's 0.6 percent effort -- this state-controlled provider of life insurance and annuities to the world's fastest-aging population jumped 56 percent.

Supply and demand might explain it. Japan's government sold 11 percent of its interest in the state postal service Japan Post Holdings, which encompasses insurance, banking, and mail services. The holding company in turn offered 11 percent stakes in Japan Post Insurance and Japan Post Bank (another somewhat boring business that mostly lends to the government via purchases of sovereign debt.) But whereas the bank and holding company offered 412.4 millionand 495 million shares respectively, the insurer had only 66 million up for grabs. Retail investors wanting to buy one of each had to bid a lot higher to get their hands on the scarcer insurance stock: The bank gained 15 percent and the holding company rose 26 percent.

It would take some guts to bet against this bump: Japan's state-backed IPOs tend to perform rather well in the year after listing, helped by productivity gains that would have been impossible under public control and buoyed by a government keen to encourage more retail share ownership.

Even so, there's a limit to how much help the state can be expected to provide, and Japan Post Holdings' plans to sell down its remaining stake provide a hell of an overhang. As the U.K. learned after the sale of its state postal service in 2013, which sparked a 38 percent increase and a public inquiry, governments risk being damned either way when they undertake major privatizations. If the price rises after the IPO, they can be accused of robbing the public purse to give money to fund managers; if it falls, they're cheating small-time investors to fill Treasury coffers.

On the fundamentals, Japan Post Insurance certainly looked pricey at the close. Insurance companies are best measured according to embedded value, a number that reflects net assets plus an adjustment for expected future profits. On that basis, Japan Post Insurance's end-of-day market cap of 2.06 trillion yen ($17 billion) is a multiple of 0.59 times its 3.5 trillion yen in embedded value. That compares with a 0.41 times multiple at Dai-Ichi Life and 0.46 times at T&D Holdings, according to analysts at Jefferies. Today's pop may be the sound of a bubble bursting.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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