Comprehensive Retirement Income Products, page-18

All things considered, it doesn’t look like a bad result to me.

If I had to look for negatives, I would say that the continued decline in the Life COE margin (3.93% in FY18 vs 4.29% in FY17 and 4.49% in FY16, see slide 19 of the Investor Presentation) does not look great, and neither does the zero YoY growth in Life annuity sales.

But, with regard to the former, I guess this is just what happens when both long-term yields and credit spreads are compressed to all-time lows.

While I am not generally a proponent of higher yields, in inflation-adjusted terms at least, I personally see only limited room for further compression of nominal yields and credit spreads. The latter, in particular, have already widened significantly from their lows and also from their FY18 average.

For illustration purposes, if we were to apply the FY16 Life COE margin (4.49%) to the FY18 average level of Total Life Assets (i.e. if we essentially reversed the impact of yield and credit spread compression over the past two years), then Life Cash Operating Earnings would be some 13% higher.

I think it is reasonable to expect this sort of reversion to occur, in part or in full, over the next few years.

Regarding the lack of growth in Life annuity sales, I see it as likely to be a one-off rather than the beginning of a trend, especially in view of the proposed CIPR legislation expected to come into effect next year.

Overall, at a FY19 forecast PE of 15.0/15.5x, this is starting to look like good value to me, given the sector and the Company’s track record. Accordingly, I have been adding to my (small) holding after today's earnings release.

IMHO & DYOR