P&O... Aug10

Sources say UK based Prudential Plc is looking at acquiring the insurance businesses of P&O Bhd.

It is learnt that Prudential has written to BNM to seek the central bank approval to begin talks with P&O on the potential sale of the group’s insurance business.

The price of the transaction is not known. The norm is 1.2 times to 1.8 times book value. At 1.2 times book value, the entire businesses of P&O may fetch a price of rm190 million, based on its FY2009 book value of RM163 million. At the higher end, the valuation could go up to rm290 million.

P&O is majority owned by its MD and CEO Chan Thye Seng, with a 61.1% stake. Industry sources say Chan has been contemplating divesting a strategic stake in P&O, making the general insurance a natural M&A target among insurers.

Apart from the general insurance business, P&O also has money lending and information technology businesses via two subsidiaries. Nevertheless, the insurance business is the highest earnings contributor to the P&O group.

It registered a net profit for FY2009 ended Sept 30. This was boosted by improvements in its insurance operations strategy.

Its turnaround in business direction in the past one to two years has resulted in the insurer having the largest market share in motor cycle coverage.

Valuations …

At closing price of 92.5 sen, P&O is trading at 6.6 times its PER for FY2010.

The stock may worth even more on M&A. M&A value for P&O is in the range of 1.5 times to two times FY2011 price to book value, which is in comparison with the first phase of consolidation of the Malaysian banking sector.

Industry observers say the big players, mainly foreign owned insurers, are actively looking at potential acquisitions to beef up their market share. This is especially after BNM liberalized the insurance sector by allowing foreign equity participation in local insurers of up to 70%.