Athene Holding (ATH) - Strong Buy Recommendation

The quiet period for the Athene IPO is scheduled to expire on January 3, 2017. This will give underwriters the opportunity to release their reports and analyses for the first time since Athene Holding began to trade publicly.

We wrote about this event on our IPO Insights platform - and first previewed the deal here.

The underwriting team for Athene Holding consists of a number of very powerful American investment banks, including Goldman Sachs, Wells Fargo Securities, Citigroup and Bank of America Merrill Lynch. The entire group numbers a whopping 22 quality investment banks.

Business Overview

(Source: athene.com)

Athene Holding is majority-owned by Apollo Global Management (NYSE:APO), a private equity powerhouse. According to its website, Athene issues, reinsures and acquires retirement savings products; specifically, its subsidiaries issue and reinsure these products, which include fixed annuities and funding agreements.

Thanks in part to strategic acquisitions, Athene Holding has grown to its present size and boasts $87 billion in assets. The company entered an agreement to acquire Aviva USA in late 2012, an arm of UK-based insurer Aviva (NYSE:AV), to the tune of 1.1 billion pounds (approximately $1.8 billion at the time).

Athene Holding remains focused on the domestic market, but last year, it purchased Delta Lloyd Deutschland, a German life insurance provider. Athene Holding will continue to be linked to Apollo Global Management and its affiliates.

(Source)

Financial Highlights and Risks

Although Athene Holding's annual bottom line has been in the black since 2012, in the first three quarters of 2016, the company has nearly doubled its net revenue to slightly more than $3 billion, while simultaneously improving its available net income to $437 million - a chunky 37% increase. Since its founding in 2009, the company has grown to accumulate $87 billion of total assets and $73.1 billion in investments as of September 30, 2016.

In Apollo Global Management's most recently reported quarter, the company disclosed that it advised or managed nearly $72 billion of Athene Holding's assets. Additionally, the parent maintained that 21%, or $15.3 billion, was either invested in investment vehicles and funds managed by Apollo or sub-advised by Apollo. We estimate this close relationship will continue.

According to the company, one of its risk factors includes dependence on estimates (results of cash flows and operations, liquidity) made by its management team. If the estimates are incorrect, the company's cash flow and operations could suffer.

Relative to its peers, Athene Holding places its deposit money into subprime real estate assets and other higher-risk investments. This, combined with its level of specialization, typically indicates higher net profit margins than those of Athene Holding's rivals, which include Lincoln National (NYSE:LNC), MetLife (NYSE:MET) and other diversified insurers.

Executive Management Overview

James R. Belardi has held the roles of chief executive officer, chief investment officer and chairman of Athene Holding since May 2009. He also serves as the investment manager of the company. Before founding Athene Holding, Belardi served as the chief investment officer and executive vice president of AIG Retirement Services, as well as the president of SunAmerica Life Insurance Company. He holds a Bachelor of Arts in economics from Stanford University and a Master of Business Administration from the University of California, Los Angeles.

William J. Wheeler is Athene Holding's president and works with James Belardi to determine the strategic direction of the company. Before joining Athene Holding in September 2015, Mr. Wheeler acted as the president of the Americas group of MetLife. He holds a Bachelor of Arts in English from Wabash College and a Master of Business Administration from Harvard Business School.

Conclusion: Buying Opportunity Prior to January 3rd

Athene's IPO caught investor attention, given the powerful group of underwriters and the size of the deal. ATH delivered first day returns of 10.1% and an additional 3.2% in the aftermarket.

Since it began operating, Athene Holding has demonstrated strong profitability and growth. The retirement market is also expected to expand, placing Athene Holding in a good trajectory.

Our firm's research shows above-market returns for the quiet period expiration event, particularly for companies like Athene with extraordinary IPOs and early market performances.

I recommend that investors purchase shares ahead of the event to take full advantage of a ramp-up in price.