original mungerville Posted March 12, 2014 Share Posted March 12, 2014 The stock is not expensive as the next dividend is coming soon ... and then the one after that, and after that, and after that...! Link to comment Share on other sites More sharing options...
giofranchi Posted March 12, 2014 Share Posted March 12, 2014 The stock is not expensive as the next dividend is coming soon ... and then the one after that, and after that, and after that...! +1 ;D ;D Gio Link to comment Share on other sites More sharing options...
giofranchi Posted March 13, 2014 Share Posted March 13, 2014 twacowfca, the author of the article I posted yesterday sees 2014 after-tax earnings from Cathedral at around $90 million... LRE purchased Cathedral for $425 million... That would translate into an unbelievably low multiple of just 4.72... for a company that has a long track-record of 26% ROE annual... How is this possible? ??? Thank you, Gio Link to comment Share on other sites More sharing options...
petec Posted March 13, 2014 Share Posted March 13, 2014 Hi Gio, Sorry for delay. My mistake - it looks like I made an important error. If the stock market values retained capital at a premium to book value (as indeed it should if it is returning 19%) then it is indeed possible that an investor today can get a greater than 12% return. Pay 160 for 100 returning 19…. Option 1, Withdraw and don't reinvest Dividends Year 0: 160 Year 1: 160 + 19 Year 2: 160 + 19 + 19 Result: Around 12% simple interest. Option 2, Reinvest Dividends at 1.6*bv Year 0: 160 Year 1: 160 + 19 (buys total 111.9 of bv) Year 2: 179 + 21.3 Result: Around 12% compound interest Option 3, Company retains 100%, reinvests incremental capital at 19% and the market values incremental capital at 1.6*bv Year 0: 160 Year 1: 160 + (19 new bv * 1.6) = 190.4 Year 2: 190.4 + (22.6 new bv * 1.6) = 226.6 Result: A 19% compound return So, the more capital that can be retained and reinvested at 19% (and valued at 1.6*) the more the return tends away from 12% towards 19%! It is possible that I am mistaken again! So please correct me if this is wrong. Yes! You are absolutely right! Now the question is: what do you want? As far as I am concerned, the answer is option 1. Maybe option 2… But I surely don’t plan to reinvest dividends indiscriminately. Certainly I don’t care about option 3, and I don’t think LRE is the best vehicle out there for option 3. I want option 1 with very tax-efficient and very predictable special dividend distributions. And I want to use all that cash opportunistically. ;) Gio Option 3 also assumes that incremental capital can be put to work at 19%. That's what Brindle is brilliant at judging. And there is great value in getting dividends that can be reinvested in LRE or something else when the stock prices offer great returns. Link to comment Share on other sites More sharing options...
giofranchi Posted March 13, 2014 Share Posted March 13, 2014 Just purchased more LRE. :) Gio Link to comment Share on other sites More sharing options...
original mungerville Posted March 13, 2014 Share Posted March 13, 2014 twacowfca, the author of the article I posted yesterday sees 2014 after-tax earnings from Cathedral at around $90 million... LRE purchased Cathedral for $425 million... That would translate into an unbelievably low multiple of just 4.72... for a company that has a long track-record of 26% ROE annual... How is this possible? ??? Thank you, Gio Gio, I agree that that article seems quite optimistic on Cathedral. I would be interested to know if anyone thinks Cathedral can earn 90M anytime soon on a consistent basis? Link to comment Share on other sites More sharing options...
giofranchi Posted March 13, 2014 Share Posted March 13, 2014 Gio, I agree that that article seems quite optimistic on Cathedral. I would be interested to know if anyone thinks Cathedral can earn 90M anytime soon on a consistent basis? That would be an home run! ;) But, even if Cathedral earns just $50 million, its acquisition by Lancashire has been a masterstroke of Mr. Brindle's. Gio Link to comment Share on other sites More sharing options...
Guest Dazel Posted March 13, 2014 Share Posted March 13, 2014 sounds like a very intresting story Gio. thanks for bringing me along... the good stuff speaks for itself. what would a category 5 hurricane in the gulf of Mexico do to the equity of Lancashire? Dazel Link to comment Share on other sites More sharing options...
giofranchi Posted March 13, 2014 Share Posted March 13, 2014 sounds like a very intresting story Gio. thanks for bringing me along... the good stuff speaks for itself. what would a category 5 hurricane in the gulf of Mexico do to the equity of Lancashire? Dazel Dazel, from the seeking alpha article: Risks - High catastrophe loss year - a couple of 100 year PML events hit in the same year - causes Lancashire to lose 30%-40% of their capital. That would be a much worse situation than 9/11. Insurance market would harden right away and rates would go through the roof. Some companies will go out of business and the others would have either to contract their underwriting (at the time when expansion would be very profitable) or raise new capital to take advantage of high rates. Lancashire's history indicates that management is able to take advantage of hardening insurance markets. And even if new capital is required, CEO's reputation and track record would go a long way in convincing investors to provide cash. In any case even without additional capital Lancashire could easily withstand even a couple of 250 year PML events in a single year. Thus a real apocalypse would have to land upon us to put Lancashire out of business. If apocalypse is truly unleashed, I guess we will have worst worries to deal with than return OF capital… ;D ;D And any high catastrophe loss year almost does not look like a true risk… but something Lancashire would welcome instead! ;) Gio Link to comment Share on other sites More sharing options...
petec Posted March 13, 2014 Share Posted March 13, 2014 Just purchased more LRE. :) Gio +1 Link to comment Share on other sites More sharing options...
Guest Dazel Posted March 13, 2014 Share Posted March 13, 2014 Thanks Gio. I realize the combined ratios are crazy low and that is their business...Brindle seems to be quite special! what is in the investment portfolio? and how big is it in relation to equity? Dazel Link to comment Share on other sites More sharing options...
CorpRaider Posted March 13, 2014 Share Posted March 13, 2014 Didn't I hear that this year is shaping up to present a potential El Nino? That might shake some of the johnny come latelys out of the reinsurance market. Also, it would allow me to post this: Link to comment Share on other sites More sharing options...
giofranchi Posted March 13, 2014 Share Posted March 13, 2014 what is in the investment portfolio? and how big is it in relation to equity? Very short term bonds 84% (average duration 1 year, book yield 1.4%), cash 16%. Total Capital at 31 December 2013 was $1.792 billion, comprising shareholders’ equity of $1.460 billion and $332 million of long-term debt. Total investments (cash included) were $2.419 billion, of which $403 million in cash. Gio Link to comment Share on other sites More sharing options...
Guest Dazel Posted March 13, 2014 Share Posted March 13, 2014 Gio, You have found an incredibly good rising interest rate play...Wow. They are earning money holding cash basically...you should tell Prem Watsa...Fairfax would love to own this company! Okay I am on the hook....I will take a good look. Thanks very much! Dazel Link to comment Share on other sites More sharing options...
PullTheTrigger Posted March 13, 2014 Share Posted March 13, 2014 I just started reviewing this thread, so sorry if I missed it anywhere, and maybe this is a more general question, but is there any conversion loss if you buy LCSHF vs LRE.L? I don't think I can buy LRE.L through my broker. If there is a loss, how do I figure it out? I'm not sure I understand the difference between the LCSHF stock price of $12.05 vs London exchange LRE.L at 717.00. Apologies if this is a basic question. Link to comment Share on other sites More sharing options...
constructive Posted March 13, 2014 Share Posted March 13, 2014 I just started reviewing this thread, so sorry if I missed it anywhere, and maybe this is a more general question, but is there any conversion loss if you buy LCSHF vs LRE.L? I don't think I can buy LRE.L through my broker. If there is a loss, how do I figure it out? I'm not sure I understand the difference between the LCSHF stock price of $12.05 vs London exchange LRE.L at 717.00. Apologies if this is a basic question. UK stocks are always listed in GBX, not GBP. £7.17 per share = $11.92 per share. So $12.05 is a 1% premium. Not bad if you are willing to deal with much lower liquidity on the pink sheets. Link to comment Share on other sites More sharing options...
argonaut Posted March 13, 2014 Share Posted March 13, 2014 One more note if you were to buy overseas. There will also probably be some fee for the currency exchange depending on the broker : .25% to 1% depending on the size of the trade. Link to comment Share on other sites More sharing options...
PullTheTrigger Posted March 13, 2014 Share Posted March 13, 2014 Thanks for clearing that up! I missed the GBX vs GBP. So, to make sure I'm tracking. Is the upcoming dividend $0.30 GBP (or $30 GBX)? Link to comment Share on other sites More sharing options...
fareastwarriors Posted March 13, 2014 Share Posted March 13, 2014 umm newbie question... what is GDX pence? Is that equivalent to cents in American English? Link to comment Share on other sites More sharing options...
PullTheTrigger Posted March 13, 2014 Share Posted March 13, 2014 Yes, GDX is pence. 1 GBP = 100 GBX. Link to comment Share on other sites More sharing options...
original mungerville Posted March 13, 2014 Share Posted March 13, 2014 Gio, You have found an incredibly good rising interest rate play...Wow. They are earning money holding cash basically...you should tell Prem Watsa...Fairfax would love to own this company! Okay I am on the hook....I will take a good look. Thanks very much! Dazel Dazel, Pure underwriting. Not only a rising interest rate hedge, but Lancashire is pretty neutral to both inflation and deflation which are the two opposing tectonic forces beneath today's investment markets. That's why I am in it as I fear both a market high collapsing (deflation) and the Fed losing control of the currency (inflation). Link to comment Share on other sites More sharing options...
muscleman Posted March 14, 2014 Share Posted March 14, 2014 Gio, how would you compare LRE with RenRe? This company has achieve a 20% tangible book growth since 1995 and it is trading at only 10% premium to book. LRE trades at a much higher premium. http://www.renre.com/RenRe_AnnualLetter_2012.pdf Link to comment Share on other sites More sharing options...
giofranchi Posted March 14, 2014 Share Posted March 14, 2014 Gio, how would you compare LRE with RenRe? This company has achieve a 20% tangible book growth since 1995 and it is trading at only 10% premium to book. LRE trades at a much higher premium. http://www.renre.com/RenRe_AnnualLetter_2012.pdf MM, just look at the graph on page 9 of the letter you have attached to your post. A similar graph of value creation for LRE would be the exact opposite: blue would be gray and gray would be blue! ;) Gio Link to comment Share on other sites More sharing options...
muscleman Posted March 14, 2014 Share Posted March 14, 2014 Gio, how would you compare LRE with RenRe? This company has achieve a 20% tangible book growth since 1995 and it is trading at only 10% premium to book. LRE trades at a much higher premium. http://www.renre.com/RenRe_AnnualLetter_2012.pdf MM, just look at the graph on page 9 of the letter you have attached to your post. A similar graph of value creation for LRE would be the exact opposite: blue would be gray and gray would be blue! ;) Gio Yeah, but if the company can keep making 20% ROE, why do you want the dividend to be paid to you and get double taxed? Also, why do you want to pay a much higher premium to LRE? Link to comment Share on other sites More sharing options...
alertmeipp Posted March 14, 2014 Share Posted March 14, 2014 So why is this one dropping since Jan? Any fundamental reason? Link to comment Share on other sites More sharing options...
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