JSX - Jackson Financial

Hey everyone, wanting to get some opinions on Jackson Financial.
- It trades at a valuation of $3.1 billion despite having $9.6 billion in book value.
- Forward P/E of 2.7
- Cash flow seems reasonably predictable
- Good return on equity
- 6.6% dividend
- Since October 2021 the business has repurchased 18% of common shares outstanding.

Looking forward to seeing what people have to say about this business.

Hi ValueNZ,

I understand that normalised/adjusted PE is running at just over 1.0 x

FWIW, from a TA perspective the Price Chart looks good. Especially the weekly.

From a FA perspective, I would wonder about their true NIM currently. Regional banks, especially, could be encountering some real pressures building here?

Quote:

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Originally Posted by FTG

Hi ValueNZ,

I understand that normalised/adjusted PE is running at just over 1.0 x

FWIW, from a TA perspective the Price Chart looks good. Especially the weekly.

From a FA perspective, I would wonder about their true NIM currently. Regional banks, especially, could be encountering some real pressures building here?

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Been doing some more research this morning.

With JXN selling annuities they hedge out the market risk through reinsurance and derivatives to smooth the results out overtime for their shareholders. Since the value of these hedges dramatically swinging upwards and downwards, the changes in value should be ignored when analysing the business. Their most recent quarterly earnings of $1.2 billion turns into $283 million in operating earnings. Which would translate to an impressive 2.7 forward p/e ratio.

So a forward P/E of 2.7 and trading at 0.4 price to book ratio, the company at least at first glance appears very cheap. I'm not 100% sure yet why it's selling at such a steep discount, but one plausible explanation is the GAAP accounting complexity with the major hedging gains/losses so the market doesn't know how to price the stock.

Will continue researching this company and make more posts in the future.

Below is a very well written comment that I found on Seeking Alpha discussing the issue with GAAP earnings when analysing the operations of Jackson Financial.

"Excellent article, but let me offer one counter example of when GAAP figures are completely meaningless. Jackson Financial, a conservatively boring annuity provider, is forced by GAAP rules to mark-to-market its huge hedge positions against P&L. This leads to completely meaningless mumbo jumbo in its GAAP reporting, where the steady, fully hedged, cash flows are invariably crowded out by the obscene effect of paper gains and losses on their hedges. So by being prudent and fully hedging their risks, they look completely reckless in their GAAP financials. If you took their GAAP financials at face value you'd think you are looking at a huge casino."

Your average retail investor is likely never going to take the time to try and understand this, and that's exactly why I think it's been overlooked by the market. Relatively small (in terms of market cap) company that makes bucketloads of operational earnings that can easily fund the dividend and buyback scheme, with what seems like very competent management, and it has plenty of cash on its books.