Analysts Tip $5b For Nrma Float

The Age

Friday July 9, 1999

ANNA FENECH

SYDNEY

The sharemarket value of a demutualised NRMA Insurance could be as much as $6billion, analysts said, with most looking to a valuation of about $5billion.

NRMA members continue to debate the merits of demutualisation, with the issue expected to dominate the NRMA's board elections, where nominations closed this week.

In a report yesterday to clients, Macquarie Bank forecast that a listed NRMA Insurance would have a market capitalisation of $5.03 billion.

This valuation does not take full account of NRMA's general insurance joint venture launched with Victoria's RACV in May, and any further alliances that may be finalised with other motoring associations in the other states.

At the same time, analysts warned that, just like AMP when it floated in June last year, any float of NRMA was expected to trade at a hefty premium to its book value, at least initially.

``It will raise the benchmark, and probably will have the same problem as the AMP," said one analyst, who declined to be name. ``I thought it was likely to trade around $12 to $15, and it traded at $16."

Another analyst said that any demutualisation and public float by the NRMA insurance arm was likely to draw more investors into the insurance sector, boosting valuations.

``It will bring more support in overall," he said ``As with the AMP and GIO, there will be a large retail shareholding in the stock."

In the Macquarie Bank report, it assumed that NRMA Limited, the road service arm, will retain its mutual status.

Its $5.03 billion valuation is based on a multiple of 17.5 times NRMA Insurance's forecast net profit after tax of $285 million for the year to June 2000, or $400 million before tax. This forecast is based on press reports and also comments from the NRMA chief executive, Mr Eric Dodd.

In the year to June 1998, NRMA Insurance reported a net profit of $95.4 million.

As part of the demutualisation, Macquarie Bank also assumes NRMA Limited will be granted equity interest of up to 5per cent or $250 million in NRMA Insurance ``to enhance the security of the association".

NRMA Limited will also gain licensing income of about $10 million a year from NRMA Insurance, Macquarie Bank forecast.

The Macquarie Bank analyst who drew up the report, Mr Tony Jackson, said yesterday that this meant that the remaining 95per cent or $4.8 billion of NRMA would be attributable to the 1.85million members of NRMA Limited, and the 1.4 million members of NRMA Insurance.

Based on this key assumption, Macquarie Bank forecast that the average member the average NRMA member - who would be a member of both NRMA Limited and NRMA Insurance - would be entitled to shares valued at $3000 in the demutualised company.

A key attraction for investors is the strong earnings growth that NRMA Insurance will generate.

``NRMA has pursued more commercial (ie profit-oriented) pricing in personal lines in recent years, and expansion into financial services and recent acquisitions all point to an aggressive, growing competitor," ABN AMRO said in a recent report.

© 1999 The Age

Back to News Index | Back to Home