A takeover offer is simply that, an offer. The acceptance and completion of that offer is another matter, just take a look at the difficulties continually disrupting Microsoft’s (NASDAQ: MSFT) attempted acquisition of Activision Blizzard (NASDAQ: ATVI).
In 2022, ClearView Wealth (ASX: CVW) was identified as a potential takeover target by TAMIM’s Ron Shamgar and, while the story did not eventuate as we would like thus far, the business has been evolving in a way that continues to make it attractive. Rising interest rates and inflation are significant tailwinds for ClearView. The company’s product is sticky with the ability to pass through inflation costs to policyholders, while higher rates result in higher investment returns on cash and fixed-income holdings.
Since Ron’s initial thoughts, ClearView has begun streamlining its business and focusing on its core product while producing improving financial results.
Underlying Net Profit After Tax (NPAT) increased by 46% in the first half of 2023 with recurring gross premiums up 8%. These positive improvements to business performance are yet to play out in share price appreciation. The previous 12 months have seen the share prices pull back around 20%.
Crystal ClearView Hindsight
A deeper dive into ClearView shows a diversified financial services group with the mission to help Australians live life to the fullest by growing and protecting their wealth.
The business is split into two segments:
1. Life Insurance (‘protection products’)
ClearView’s life insurance products allow eligible policyholders to receive one off or recurring benefits depending on the product, these products are:
LifeSolutions: providing comprehensive coverage, including term life, disability, trauma, critical illness, child cover, accident, income protection, and business expense covers.
ClearView ClearChoice: a series of insurances offered both directly or through the HUB24 Super Fund. It was launched in 2021 and incorporates significant changes to income protection product design and pricing to enhance affordability and sustainability. It can be issued directly or through the HUB24 Super Fund.
Non-Advice Life Protection Portfolio: This portfolio consists of previously sold non-advice life protection products marketed through direct channels. These products are no longer available for sale to customers, and the direct life insurance business closed in May 2017.
The life insurance business accounted for approximately 94% of ClearView’s total revenue in the first half of 2023.
2. Wealth Management (‘investment products’)
ClearView's Wealth Management business offers products through four primary avenues with a total FUM of $3.3 billion as of December 2022. These avenues are:
Traditional Products (Master Trust): Historically included ordinary savings, superannuation, and allocated pension products.
WealthSolutions: Consists of a superannuation and retirement income wrap issued through the ClearView Retirement Plan and an Investor Directed Portfolio Service Wrap provided by ClearView Financial Management Limited (CFML). It offers a broad menu of investment funds, ASX listed shares and term deposits.
WealthSolutions 2: A white-labelled product on the HUB24 platform with limited administration fee margins. It utilises ClearView model portfolios and platform funds to generate margins.
WealthFoundations: A mid-market wealth management product suite offering superannuation and allocated pension products. It includes a menu of investment options with transparent investment in underlying funds and is administered in-house on the Acurity platform.
The wealth management business is now in the process of being divested which we will discuss later on.
Several factors led to Ron Shamgar’s original takeover thesis.
These included the time pressure on Crescent Holdings' investment in ClearView with the thought that it would need to be realised into cash by June 2022, making them a motivated seller. This is yet to eventuate, but what has remained is the significant life insurance asset in Australia with a growing market share making it attractive to buyers.
What’s happened recently
Wealth Management Divestment
ClearView, in pursuit of simplifying its business and focusing on life insurance, has divested its wealth management segment by entering a share sale agreement with Human Financial.
This agreement includes the sale of CFML to Human Financial, subject to certain conditions. The transaction allows ClearView to retain its life insurance focus while removing wealth regulatory risks and scale issues. ClearView will receive $17.3 million in proceeds, comprising a cash component of $1.3 million and a 40% equity interest in Human Financial valued at $16 million. The transaction is expected to result in a $3.4 million profit on sale and a surplus capital uplift of around $15 million for the Group.
Following the completion of the deal, ClearView's primary focus will be on life insurance. The deal is expected to be completed in the first half of FY24, pending relevant approvals.
Nadine Gooderick was appointed ClearView’s new CEO announced at the beginning of May following the retirement of long serving Managing Director Simon Swanson.
Gooderick took over at the beginning of the financial year and boasts over 25 years of experience in the life insurance industry and joined the company in October 2020, helping navigate through an incredibly difficult time for business.
Enhanced Product Suite
The company announced updates to its flagship product ClearView ClearChoice life insurance product range with simplifications made across income protection products as well as increasing client benefits.
The now former Managing Director Simon Swanson commented at the time:
“The updates to ClearView ClearChoice ensure our life insurance products remain adaptive, flexible, and built on what advisers have told us their clients really need,”
“With the life insurance industry looking ahead to an exciting new future of simplified regulation, positive structural reform and stable commission rates, ClearView is well positioned to partner with advisers as they build efficient and nimble businesses.”
ClearView is well-positioned to capitalise on rising interest rates, resulting in improved investment returns and a positive outlook for its underlying NPAT in future periods. With the strategic divestment of its wealth management business to Human Financial, ClearView is streamlining its operations and poised for earnings growth from its strategic shareholding. The recent appointment of Nadine Gooderick as the new CEO provides an exciting opportunity for the company to showcase its potential and outline ambitious plans.
Additionally, investment in technology is expected to support earnings, while regulatory reforms are set to enhance industry profitability and sentiment, potentially leading to a rise in valuation multiples. Despite these promising prospects and with a simplified business model that makes it easier for potential suitors to value the company, ClearView's current share price may not fully reflect the potential for improving earnings per share, warranting a closer look from investors.
Disclaimer: ClearView Wealth (ASX: CVW) is currently held in the TAMIM Portfolios.
At TAMIM we are committed to educating investors on how best to manage their retirement futures.
Sign up to receive our weekly newsletter:
TAMIM Asset Management provides general information to help you understand our investment approach. Any financial information we provide is not advice, has not considered your personal circumstances and may not be suitable for you.