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Life Partners Holdings, Inc. Company and Stock Analysis

Company Info and Market Share

Life Partners Holdings (LPHI:NASDAQ) is the parent company of Life Partners, Inc. The company is responsible for facilitating viatical and life settlements contracts. LPHI is an agent for institutions and wealthy investors who purchase individual life insurance policies at a discount and become beneficiaries upon maturing of these policies.

According to the company’s Annual Report, the life settlements market is a $7.3 billion market and the company has about 7% market share in it. They have gone up from a 6% market share to 7% market share in just one year.

Also, the company saw an increase of 8% and 8.2% approx. In its Net Income and Earnings per Share respectively.

What is life settlement? Life settlement is sale or transfer of an insurance policy in lieu of cash. The beneficiary then is the life settlement company – the new owner of the policy. The money paid to the original policy holder is usually higher than the surrender value of the insurance policy.

I have performed research on the topic and following are some of the basic points about life settlements that I’d like to share here today:

  1. Proceeds are Taxable – Should always consult a tax advisor prior to selling the policy
  2. Almost any type of life insurance policy is acceptable – Universal, whole, term, Keynes, Survivorship, etc
  3. The process can be anywhere between 2 to 6 weeks long
  4. Eligibility : Anyone 65 or over, a policy with a face amount of $50,000 or more and an assignable policy or a policy outside of the contestable period.

Given the economic times, an increase in Net Income, Earnings per Share and Market Share makes LPHI a very viable investment. I personally believe that LPHI is a good investment because the credit restraints do not affect the life settlements market as much. Investors are looking to diversify their portfolio and are actively seeking alternative investment strategies. I will perform an intrinsic value calculation to see if this assumption holds true.

Calculating Intrinsic Value of Stock To Determine Fair Value

LPHI’s stock price as of March 1, 2010 was $20.95.

I performed my intrinsic value calculation using the following steps:

    • Calculate growth rate (g) in Earnings per Share from 2002 (the company went public in 2000 but EPS were negligible and P/E ratio was negative the first two years, so I am beginning my calculation starting year 2002):  The growth rate came up to be 25.77% but given the recent economic crisis, I will take a conservative approach and use 15% as the growth value for future predictions.
    • Calculate average Price to Earnings: P/E ratio is calculated by dividing the stock price with the EPS for a particular period. After obtaining numbers from the 10K for 2002-2009 and dividing it by 8 to get an average, I got a figure of 27. Over the years the company has experienced declines in its P/E ratio and for that fact I will use a smaller figure of 18 to balance things out.
    • Calculating future share value: Calculating the value of the stock 10 years from now. This is done by:
      EPSx({1+g)^10}xAvg. P/E Ratio=$1.98 (1.15^10)x18= $144.18 approx.
    • Add Projected Dividend Payout to Future Share Value. After Having calculated projected EPS for 10 years ($1.98, EPS from last year,  multiplied by 15% growth rate every year), we multiply the sum by average dividend payout ratio of 15% (Even though the calculation gave me a figure of approx. 27%, I am using 15% as one year in between the dividend payout was close to 90% whereas it was between 11 and 23% at other times. ). Total sum was $39.947 and multiplying that by 15%, we get a figure of $6 approx. Adding that to the future share value we get $150.18.
    • Now we divide the number obtained in the previous step by the expected returns.
      The stock has shown a growth of 16.75% in the stock price over the past 8 years. We will use 11% as a standard expected return for this particular investment to maintain somewhat of a conservative approach..
    • The intrinsic value obtained after the above calculation is: $150.18/(1.11^10)=$52.90 approx. Comparing this figure to the stock price of $20.22 on NASDAQ at close of day on May 28,2010, it can be concluded that LPHI is a viable investment.

(Please Note, these are my personal calculations and conclusions, I do not assume any responsibility for the changes in stock price or any losses incurred upon taking my advice.)

DISCLAIMER

Disclaimer
The opinions expressed by the Smith Student Bloggers are theirs alone and do not reflect the opinions of the Robert H. Smith School of Business or the University of Maryland or any employee thereof. The Smith School is not responsible for the accuracy of any of the information supplied by the Student Bloggers.

My 2010 Predictions

Happy New Year’s Eve to everybody!

There have been many forecasts made about the year 2010 such as Russian academic Igor Paranin predicting the end of United States or Global economy getting worse.

I thought of ending this year with a few of my own predictions:

  • I completely disagree with Igor Paranin. Yes, the United States has not been performing as it has in the past but it takes more than just a recession to disintegrate such a powerful nation
  • The US economy would not see much growth in the first quarter but come second quarter there would be slow but steady growth
  • Economic growth of about 4% (Global Economy) with China being the major contender (Given) at about 9-10%
  • Stock market seeing a constant upward movement
  • Rise in the number of small businesses
  • Credit would still be hard to come by. I believe that getting credit would not be easier anyway. Although not impossible to get but with recent sub-prime transactions (main reason why America is where it is right now) it would continue being hard to get credit
  • And last but the most important one for me is the job market. Being a recent college graduate I know how tough it is out there. I believe there would be a positive trend in the job market. More jobs would be available for more people.

Let’s see how accurate I am. Only time will tell.

Happy New Year to everyone and their families!  May the new year bring prosperity to all 🙂

The First Post

I am Karan Malhotra, a senior at the University of Maryland who will be graduating in December with a Bachelors of Science with concentration in finance. Being one of the few students to be a part of the prestigious Emerging CFO’s Fellows Program that the Business school – R.H. Smith School of Business has to offer, I have learned a lot. Approaching my graduation at the end of the year – December 2009, I thought to myself that there has to be a way to apply what I have learned in class and also a way to expand my horizons. Yes, internships are a good way to do that but I want to do more. I want to learn more, I want to help other people learn more, I want other people to help me learn more, I want to expand my knowledge database, constantly seek new challenges and learn from them or just simply take advice from people already well established in the field of business and finance. Through this medium of mass communication- Blogging, I want to reach out to every person who is either interested in expanding their knowledge on what goes on in the finance world, or want to acquaint new people like myself with the real world actions, talk and environment.

Here’s the ideology behind the functioning of this blog – interaction! I will be posting either my reviews on books or articles or just share articles with people from WSJ, etc that I think might be of value. I will also share my experiences at my new internship. In return I’d appreciate comments, suggestions and constructive criticism along with any articles or book reviews that you might want to share. In all it is a very open and interactive blog for us all to come together and help each other learn and grow.