Generation Development Group has completed a $35m capital raising to fund two strategic growth initiatives, explains Morgans.
The first is the acquisition of a 37% stake in Lonsec, a leading qualitative research firm for around $20m, which seems a reasonable price to the broker.
The second is the launch of an annuity product to address longevity risk. It seems logical to the analyst to launch a differentiated product (a market-linked annuity with higher returns) that is capital light (investment and longevity risk are not borne by the company ), and which has a large addressable market.
Morgans lowers EPS estimates for FY21, FY22 and FY23 by -60%, -55% and -30%, respectively. Annuity product development costs more than offsett the Lonsec accretion near term, calaculates the broker. However, the price target rises on an uplift to medium-term growth assumptions in the analyst’s valuation.
The Add rating is is unchanged and the target price is increased to $0.97 from $0.94.
Sector: Insurance.
Target price is $0.97.Current Price is $0.73. Difference: $0.24 – (brackets indicate current price is over target). If GDG meets the Morgans target it will return approximately 25% (excluding dividends, fees and charges – negative figures indicate an expected loss).
