LRE.L - Lancashire Holdings Ltd

[giofranchi]

Hello

I am wondering if someone knows how much of Lancashire does Mr. Brindle personally own.  I've been searching for half an hour and thought it might be easier to just ask the question on the board  ;D

 

Thanks!

 

As of 2012 year-end he held 858,022 common shares.

 

I another post of this same thread I remember twacowfca explained that, though Mr. Brindle owns a small percentage of LRE’s shares outstanding, the great majority of his personal wealth is invested in LRE, which, of course, is what we want to see. :)

 

giofranchi

 

[gary17]

He earns 4M in salary a year and only has about 9M invested here I somehow doubt this is the majority of his personal wealth.  Can you please paste the link to that other thread , thanks

[giofranchi]

See Page 42 of this very same thread:

 

Brindle's warrants expire Dec. 15, 2015. Cashless exercise before the expiration date would probably give him about 3% of the shares outstanding, based on current market prices.  The most important thing is that a huge amount of his wealth is in Lancashire.

 

3% of a £1200 market cap company equates to a £36 million ownership, or £36 x 1.58 = $57 million.

 

giofranchi

 

[WhoIsWarren]

See Page 42 of this very same thread:

 

Brindle's warrants expire Dec. 15, 2015. Cashless exercise before the expiration date would probably give him about 3% of the shares outstanding, based on current market prices.  The most important thing is that a huge amount of his wealth is in Lancashire.

 

3% of a £1200 market cap company equates to a £36 million ownership, or £36 x 1.58 = $57 million.

 

giofranchi

 

You don't have to take twacowfca's word for it guys -- you can get all this in the annual report!! [Doesn't anyone read annual reports anymore??]

 

All data from year-end 2012 (AR 2012 page 62-66):

 

Founder warrants: 46,260; strike $5

Time vesting ord. warrants: 3,718,912; strike $5

Time vesting ord. warrants: 1,906,305; strike $3.9

Perf. vesting ord. warrants: 288,843; strike $5

Perf. vesting ord. warrants: 47,155; strike $3.9

Perf. vesting ord. warrants: 405,967; strike $2.6

 

RSS grants: 1,185,065

 

Ord. shares: 858,022

 

Current share price: £7.5 = $11.85

 

Nil cost value of warrants: $47m

Value of RSS: $14m

Value of Shares: $10m

 

Total value of Brindle's holdings: $71m

 

I'm pretty sure these numbers are correct, but let me know if they're not.

 

 

[giofranchi]

You don't have to take twacowfca's word for it guys -- you can get all this in the annual report!! [Doesn't anyone read annual reports anymore??]

 

Hi WhoIsWarren,

you most surely are right! And you already know by now that I am no analyst… Instead, I am (or at least try to be... ;D) a businessman. As such, I have the time to look for whatever I NEED to make decisions, but I have not a minute more… There are a lot of things I would like to know about many subjects, but, alas!, I will have to keep my curiosity in check! :)

 

I am much more interested in “how much control” rather than “how much of personal wealth” a person has on the company he manages. Because I strongly believe what Mr. Malone has said: paraphrasing, the moment you stop worrying about control, you can start working for economic performance. Therefore, I want to see the people I choose as “partners” to wield full control over their companies.

 

3% is not enough, but neither is 5% or, for that matter, 10%... So, the time twacowfca said 3% I lost all interest on the subject… and I didn’t spend a single minute more on it.

 

PS

Of course, if you remember well, twacowfca also explained why in truth Mr. Brindle enjoys full control over Lancashire, though it has nothing to do with ownership control. And that is not a piece of knowledge you find on an AR! ;)

 

giofranchi

 

[WhoIsWarren]

 

Of course, if you remember well, twacowfca also explained why in truth Mr. Brindle enjoys full control over Lancashire, though it has nothing to do with ownership control. And that is not a piece of knowledge you find on an AR! ;)

 

giofranchi

 

Ha! Well you're absolutely right there.

 

I admit that it's my biggest concern with this investment.  I know....$70m....it's of course a lot of money, but if Brindle is "the man", he could feel entitled to a greater slice of the pie.  What's to stop him and a core team leaving and setting up again?  And then what -- where would that leave an investment in LRE?  Gio you said previously that if that happens, you would sell your shares, but that's not very satisfactory as you might be selling post some natural catastrophe or during a weak stock market and might therefore suffer a significant loss on your capital.

 

As my father says, the day you buy is the day you sell.  Is the company's future returns profile robust enough to deal with the departure of such a core team?

 

I am reading Taleb's Antifragile currently.  I buy into the idea of protecting your downside and paying a low price for optionality.  Fairfax, Brookfield, Berkshire.....these are the types of companies that I believe exhibit such a payoff structure*.  I believe they will profit from volatility, the adversity of others.  Their ability to benefit from volatility is largely down to people and culture.  Prem, Flatt, Buffett and their core teams are not going to leave for a competitor.  We know this! They've got billions invested in their respective companies.  And more than that -- they've invested their many years to-date building up their track records, their legacies.

 

I believe Lancashire could be one such company.  However, I know the intentions of Brindle et al. less well than the others mentioned above.  Thus, I feel there is the potential for higher downside risk.

 

I know I've pondered this risk a few times already.  Twacowfca believes that even if Brindle leaves that there are a number of capable people behind him that can take over, which is clearly comforting.  Also, in the back of my mind I feel that it would damage Brindle's reputation among investors and clients were he to jump ship every 8-10 years and start another company.  Another barrier might be the mountainous workload involved in setting up a new company -- something a person only wishes to do once in their lives!

 

Anything else?  Has Brindle ever specifically addressed the issue of his "legacy"? 

 

[*We could get into a discussion about the current valuations of these companies.  Perhaps now there's more downside to these shares -- and consequently the price of their optionality is too expensive.  But let's park that discussion for now as I'm thinking 'big picture'.]

 

 

[giofranchi]

I admit that it's my biggest concern with this investment.  I know....$70m....it's of course a lot of money, but if Brindle is "the man", he could feel entitled to a greater slice of the pie.  What's to stop him and a core team leaving and setting up again?  And then what -- where would that leave an investment in LRE?  Gio you said previously that if that happens, you would sell your shares, but that's not very satisfactory as you might be selling post some natural catastrophe or during a weak stock market and might therefore suffer a significant loss on your capital.

 

Ah! You can always lose a lot of capital, in a myriad of different ways!! The only way I don’t mind losing money is being wrong about a business. Because being right about business is the game I have chosen for myself. The game I like the best and I feel more confident playing. If, even in what I like the best, I am not good enough, I clearly deserve to lose money! At least, that’s my point of view.

 

I know I've pondered this risk a few times already.  Twacowfca believes that even if Brindle leaves that there are a number of capable people behind him that can take over, which is clearly comforting.  Also, in the back of my mind I feel that it would damage Brindle's reputation among investors and clients were he to jump ship every 8-10 years and start another company.  Another barrier might be the mountainous workload involved in setting up a new company -- something a person only wishes to do once in their lives!

 

With all this I agree. Yet, I cannot be sure, and I don’t need or require to be. Business is all about the future, and there cannot be any certainties about the future at all. I look for things I like very much in the present. If they are plentiful in a single business, I invest heavily in it. Always aware of the fact that those things I like so much might change tomorrow and prove me wrong. If that happens, it is proof my judgment about the business was flawed, I deserve to lose money, and with the capital that’s left I will be looking for another business with a lot of things to like about.

 

I will repeat the process until no capital is left! ;D ;D ;D

 

giofranchi

 

[twacowfca]

I admit that it's my biggest concern with this investment.  I know....$70m....it's of course a lot of money, but if Brindle is "the man", he could feel entitled to a greater slice of the pie.  What's to stop him and a core team leaving and setting up again?  And then what -- where would that leave an investment in LRE?  Gio you said previously that if that happens, you would sell your shares, but that's not very satisfactory as you might be selling post some natural catastrophe or during a weak stock market and might therefore suffer a significant loss on your capital.

 

Ah! You can always lose a lot of capital, in a myriad of different ways!! The only way I don’t mind losing money is being wrong about a business. Because being right about business is the game I have chosen for myself. The game I like the best and I feel more confident playing. If, even in what I like the best, I am not good enough, I clearly deserve to lose money! At least, that’s my point of view.

 

I know I've pondered this risk a few times already.  Twacowfca believes that even if Brindle leaves that there are a number of capable people behind him that can take over, which is clearly comforting.  Also, in the back of my mind I feel that it would damage Brindle's reputation among investors and clients were he to jump ship every 8-10 years and start another company.  Another barrier might be the mountainous workload involved in setting up a new company -- something a person only wishes to do once in their lives!

 

With all this I agree. Yet, I cannot be sure, and I don’t need or require to be. Business is all about the future, and there cannot be any certainties about the future at all. I look for things I like very much in the present. If they are plentiful in a single business, I invest heavily in it. Always aware of the fact that those things I like so much might change tomorrow and prove me wrong. If that happens, it is proof my judgment about the business was flawed, I deserve to lose money, and with the capital that’s left I will be looking for another business with a lot of things to like about.

 

I will repeat the process until no capital is left! ;D ;D ;D

 

giofranchi

 

The probability of Brindle's leaving Lancashire to work somewhere else without a sale of the business for a good price isn't zero, but close to it.  He's the founder. He has a lot of skin in the game, including the millions of ITM warrants he holds.  His BOD understands what makes Lancashire unique. Why would he leave?

[WhoIsWarren]

The probability of Brindle's leaving Lancashire to work somewhere else without a sale of the business for a good price isn't zero, but close to it.  He's the founder. He has a lot of skin in the game, including the millions of ITM warrants he holds.  His BOD understands what makes Lancashire unique. Why would he leave?

 

That's what I figure too.  Let's hope it's a fair assumption!  Thanks twacowfca.

[tripleoptician]

Is the LCSHF not the ADR for Lancashire?

 

This is correct. I'm currently looking into this ADR because my discount brokerage has absurd costs per trade for foreign holdings.

Based on current exchange, the trading value mirrors the current GBP share price currently. The dividends are paid out the same as with LRE.

 

Is the only downside of the ADR the dramatically lower liquidity based on low volume? Is there any other reason any Canadian or US board members aren't purchasing the ADR?

 

TIA

[returnonmycapital]

Is the LCSHF not the ADR for Lancashire?

 

This is correct. I'm currently looking into this ADR because my discount brokerage has absurd costs per trade for foreign holdings.

Based on current exchange, the trading value mirrors the current GBP share price currently. The dividends are paid out the same as with LRE.

 

Is the only downside of the ADR the dramatically lower liquidity based on low volume? Is there any other reason any Canadian or US board members aren't purchasing the ADR?

 

TIA

 

For some, LCSHF might be restricted. This is the response I received from a broker when looking into the security:

 

"I wanted to let you know that our team has heard back from DTC. Although they are unable to legally send us the exact details on the restrictions, they were able to communicate that the issues pertain to restrictions on delivery of the security at DTC.  If the security cannot be delivered, it implies that it cannot be traded."

[TwoCitiesCapital]

Is the LCSHF not the ADR for Lancashire?

 

This is correct. I'm currently looking into this ADR because my discount brokerage has absurd costs per trade for foreign holdings.

Based on current exchange, the trading value mirrors the current GBP share price currently. The dividends are paid out the same as with LRE.

 

Is the only downside of the ADR the dramatically lower liquidity based on low volume? Is there any other reason any Canadian or US board members aren't purchasing the ADR?

 

TIA

 

That's what I found with my purchases to be the only downside. I had a limit order in that I renewed every day for a week and still had to fill at a 1.5% premium doing that. The liquidity really makes it difficult to get in and get out without shaving off 2-3% on each side of the transaction....

[tripleoptician]

Is the LCSHF not the ADR for Lancashire?

 

This is correct. I'm currently looking into this ADR because my discount brokerage has absurd costs per trade for foreign holdings.

Based on current exchange, the trading value mirrors the current GBP share price currently. The dividends are paid out the same as with LRE.

 

Is the only downside of the ADR the dramatically lower liquidity based on low volume? Is there any other reason any Canadian or US board members aren't purchasing the ADR?

 

TIA

 

That's what I found with my purchases to be the only downside. I had a limit order in that I renewed every day for a week and still had to fill at a 1.5% premium doing that. The liquidity really makes it difficult to get in and get out without shaving off 2-3% on each side of the transaction....

 

That makes sense. I guess it depends on the size of purchase which is the better route. Zach have you received a dividend yet? Was it significantly delayed or smooth? Is there any GBP/USD conversion concerns with the divi?

[TwoCitiesCapital]

Is the LCSHF not the ADR for Lancashire?

 

This is correct. I'm currently looking into this ADR because my discount brokerage has absurd costs per trade for foreign holdings.

Based on current exchange, the trading value mirrors the current GBP share price currently. The dividends are paid out the same as with LRE.

 

Is the only downside of the ADR the dramatically lower liquidity based on low volume? Is there any other reason any Canadian or US board members aren't purchasing the ADR?

 

TIA

 

That's what I found with my purchases to be the only downside. I had a limit order in that I renewed every day for a week and still had to fill at a 1.5% premium doing that. The liquidity really makes it difficult to get in and get out without shaving off 2-3% on each side of the transaction....

 

That makes sense. I guess it depends on the size of purchase which is the better route. Zach have you received a dividend yet? Was it significantly delayed or smooth? Is there any GBP/USD conversion concerns with the divi?

 

I haven't yet. Still a new position for me. Looking to build my understanding of the company and scale up from there. Just haven't had the time.

 

As far as divi's being delayed for ADRs, it seems like it depends on the company. I own Fairfax ADRs and dividend seems to come through pretty quickly. Some of my other ADRs seem to take forever to post after its been paid. There's no conversion necessary - whoever custodies/facilitates ADR conversion takes care of ccy conversion for dividends.

[giofranchi]

Assuming an average ROE of 19%, a price of 1.7 x BVPS (Earnings Yield of 19 / 1.7 = 11.2%), and a CAGR of 4% in BVPS, the file in attachment shows how your investment would grow in 15 years.

An initial investment of 1 would grow to 8 in 15 years. Which is exactly a compounded return of 15% annual.

An equity of $1.3 billion that grows at a 4% CAGR will be worth $2.34 billion in 15 years. Insurance and Reinsurance markets worldwide are made of $ trillions… So, $2.34 billion still seem very small capital to me.

 

giofranchi

LRE.xlsx

[peekay]

Any idea what is happening?  I just got a price alert that LCSHF decreased 50%!?

 

 

[Liberty]

Any idea what is happening?  I just got a price alert that LCSHF decreased 50%!?

 

Just saw that too, came here to ask the same question.

[jay21]

Any idea what is happening?  I just got a price alert that LCSHF decreased 50%!?

 

Just saw that too, came here to ask the same question.

 

I'm seeing 300 shares traded.  So probably someone doing a market order.  LRE is only down 1%

[wawallace]

Bid is $12.18. I logged in to buy a couple hundred thousand shares.

 

Someone may need to buy a share to prevent a margin call.

[fareastwarriors]

I put a limit order for 1000 shares at $10.  Hope some gets filled at that price ;D (not being too greedy here)!

[fareastwarriors]

I put a limit order for 1000 shares at $10.  Hope some gets filled at that price ;D (not being too greedy here)!

 

nothing got filled =(

[TwoCitiesCapital]

Any idea what is happening?  I just got a price alert that LCSHF decreased 50%!?

 

Just saw that too, came here to ask the same question.

 

I'm seeing 300 shares traded.  So probably someone doing a market order.  LRE is only down 1%

 

Poor bastard. Judging by the 350 shares traded it was a small investor who just learned a $2000 lesson - use limit orders!!!!!!!

[Kiltacular]

Poor bastard. Judging by the 350 shares traded it was a small investor who just learned a $2000 lesson - use limit orders!!!!!!!

 

I swear this wasn't me just trying to prove the point I made earlier in this thread.  8)

[giofranchi]

I think the Bloomberg page for the LRE’s quote is very well done:

 

http://www.bloomberg.com/quote/LRE:LN

 

You see a Price/Book of 1.5726… and LRE is an insurance company, right? So, it cannot be cheap… And that’s exactly Mr. Market mistake: to price LRE as if it were just a well-run insurance company… Look instead at the TTM P/E: it is just 7.4533…!!

As soon as you stop thinking about LRE as an insurance company, you start seeing a TTM earnings yield of 1 / 7.4533 = 13.4%. :)

 

giofranchi

 

[twacowfca]

I think the Bloomberg page for the LRE’s quote is very well done:

 

http://www.bloomberg.com/quote/LRE:LN

 

You see a Price/Book of 1.5726… and LRE is an insurance company, right? So, it cannot be cheap… And that’s exactly Mr. Market mistake: to price LRE as if it were just a well-run insurance company… Look instead at the TTM P/E: it is just 7.4533…!!

As soon as you stop thinking about LRE as an insurance company, you start seeing a TTM earnings yield of 1 / 7.4533 = 13.4%. :)

 

giofranchi

 

Yup! Plus, that's all owner's earnings. With most companies, a substantial percentage of earnings have to be reinvested one way or another merely to be able to hold their own against competition :capex, R&D, or acquiring other companies to compensate for losing their edge in their core business.

 

With Lancashire, less is more.  :)