ELF.TO - E-L Financial Corp. Ltd.

[Rod]

Like everyone here, I'm pretty attracted by the sizeable discounts on ELF, UNC, and EVT. I'm not happy with the layered corporate structure, however, that leads to a high capital gains tax rate. Just to use ELF as an example: Think about the UNC holding. You pay tax on the stock gains within UNC. Then you pay tax on the gain in UNC within ELF. Then you pay tax on ELF if it's in a taxable account. I kinda grudgingly accept paying capital gains taxes once if necessary, but THREE times on the same gain?? Obviously, the accumulated tax liabilities to date are netted out of NAV so you don't pay that. But you do pay all the tax on future gains. I fully expect that the Jackmans will take all three of these stocks private over time. And when they do, we can be sure that the price we get will be net of all deferred tax liabilities. If the stocks go private in the next few years it will be a good deal to buy now--the discounts are large enough to ensure that. But if it takes longer the tax drag starts to take the gain out of it. For me, buying these three stocks is a guess on how soon the privatization occurs.

[mjm]

Companies in which The Hon. Henry N.R. Jackman has an indirect interest, control, in the aggregate, 2,909,709 or 72.4% of the outstanding Common Shares of the Company. Although The Hon. Henry N.R. Jackman is associated with some of these companies, (including Dominion and Anglo Investment Corporation Limited) he does not control any of them and, accordingly, does not have beneficial ownership of the Common Shares of the Company held by them.

 

EVT owns 386K shares of  ELF also which is around 10%

[wisowis]

I managed to enter in all the information from United and Economic's March 31st reports, and combined them with their stake in Algoma.

This accounts for 1.324 billion of the 5.323 billion net equity value listed in ELF's report.

 

Since March 31, 2018:

Algoma +6,220,210$

United +43,851,375$

Economic +4,539,748$

 

Shares outstanding: 4,019,667

 

Per share, these pieces of ELF went from $329.3 to $342.9 (+4.1%), or a per share increase of 13.6$.

 

 

...are there any other pieces available?

[SafetyinNumbers]

Are you trying to calculate the change in book value quarter over quarter?

[wisowis]

Current value vs. last quarter. You can check my spreadsheet here if you are interested: https://docs.google.com/spreadsheets/d/1F1Pk-vQKZVXX4X2UESABcpliKFGdki0Ip5NQCOxiTaY/edit?usp=sharing

[SafetyinNumbers]

I was just curious. I would throw in at least a 10% ROE for Empire Life for the quarter and add that in.

 

Also, they consolidate UNC and I believe, equity account for Algoma and EVT so the changes in market value don’t necessarily get captured in the book value.

[SafetyinNumbers]

Empire Life puts up a 15.6% ROE for Q2. Another very strong indication that the NAV is understated when valuing Empire Life at book value.

 

http://globenewswire.com/news-release/2018/08/02/1546584/0/en/Empire-Life-reports-second-quarter-2018-results.html?ev=1

 

I also find it interesting that Empire Life appears to have started paying out regular dividends to ELF.

 

http://globenewswire.com/news-release/2018/08/02/1546588/0/en/Empire-Life-announces-dividends.html?ev=1

[mjm]

2nd quarter results out. any input from the knowledgeable posters here? Empire life results seem to keep improving which is encouraging.

[Grafter]

3rd quarter is out.  It looks like the discount to NAV is about 39% (if I'm calculating it right).

[woodstove]

United Corps has changed investment manager (per recent press release).  Any thoughts?  Does it reflect a strategy change, or just a transition of teams?

[Guest notorious546]

United Corps has changed investment manager (per recent press release).  Any thoughts?  Does it reflect a strategy change, or just a transition of teams?

 

how why/ does this matter?

[woodstove]

Hi Notorious...  I'm not sure I understand your question.  Here is what I was getting at...

 

-- Do you mean what is difference between strategy change vs transition of teams?  I am curious whether there is strategy change -- eg, with another ELF affiliated fund, a while-ago decision to allocate a small fraction of funds to emerging markets represented a small strategy change, I thought.

 

-- In contrast, a transition of teams is perhaps not a strategy change, just possibly a determination that another team(s) might be more suited to continue following of prior strategy.  Don't know ... that's why I am interested in thoughts of others.

 

 

[SafetyinNumbers]

They seem to have a preference for independent money managers so perhaps it has more to do with J&F being acquired by Scotia than a strategy change per se.

 

As a side note, this is the biggest NAV discount I have seen since 2011. I don’t track it daily but by quarter end back to 2009 and yearly before that. At the end of 2011, the NAV was $642.98 and the stock was $340.

[mjm]

i FWIW also believe they are more stable w/o the property and casualty business they owned then and sold and with just Empire which is more stable and growing, albeit slowly.

[woodstove]

"Preference for independent money managers" -- yes, that seems most probable reasoning.  I admit being a bit concerned about J&F acquisition by Scotia, that the rationality, value, loyalty, patience discipline might get diluted via larger organization culture.  So despite knowing nothing about these new investment managers, I'm ok with such a move.  One of the curiosities about ELF group is that the boards have max age-70 criterion, despite being such long-history firm.  Wise choice in my opinion (and I'm over that hill, among others).  Rely upon seasoned middle generation, facilitate the seasoning and intake.  Re stability -- the group has more cross bracing than most structures.  Very impressive.  Good for worry-free sleep.  Glad to be along for the ride, hope the group never goes private.  Thanks for the link to Australian fund manager writeup -- hadn't seen it before.  Maybe discount is Christmas special !

[mjm]

look like corporate's global portfolio got caught in the 4th quarter swoon.  looks like empire had a so-so year. any other more knowledgeable posters have any input.  TIA

[wisowis]

From my crappy spreadsheeting skills, looks like these are the top drags on ELF from the Mar 2018 carrying value to current market price:

 

- United's Japan portfolio: -4.3$/share

- Conagra Brands [via United]: -2.7$/share

- Henkel [via Economic]: -3$/share

- Algoma: -3.2$/share (might be wrong about this one, based on SafetyInNumber's previous comment).

 

[SafetyinNumbers]

Empire Life released its earnings - ROE was decent at 11.2%

 

http://www.globenewswire.com/news-release/2019/05/02/1815605/0/en/Empire-Life-reports-first-quarter-2019-results.html?ev=1

 

With the market bounce back, I’m expecting NAV to bounce to new highs when they report next week but I guess we’ll see.

 

Anyone going to the AGM?

[SafetyinNumbers]

ELF reported on Thursday. The NAV hit an all new high at $1382.18 while the NAV discount is the biggest since 2011.

 

I attended the AGM on Thursday as well. A few shareholders asked about the potential for share buybacks and the push back from management seemed slightly less than the yeas before.

 

I don't know if they will try something to close the discount or buy the stock back but I wouldn't be surprised if they did. I also don't have high hopes that they will!

 

https://www.newswire.ca/news-releases/e-l-financial-corporation-limited-announces-march-31-2019-financial-results-818983409.html

[wisowis]

What reasoning did they provide to not do a buyback? Seems like a no-brainer to buy dollars for 57 cents.

[wachtwoord]

What reasoning did they provide to not do a buyback? Seems like a no-brainer to buy dollars for 57 cents.

 

Empire building? Wanting to privately buy cheap shares?

 

What else would be a good reason really? I really doubt they have alternative investment opportunities with a higher ROIC :P

[SafetyinNumbers]

What reasoning did they provide to not do a buyback? Seems like a no-brainer to buy dollars for 57 cents.

 

Empire building? Wanting to privately buy cheap shares?

 

What else would be a good reason really? I really doubt they have alternative investment opportunities with a higher ROIC :P

 

I think they think it’s akin to financial engineering. They tried a SIB at ALC and barely bought any stock back so they don’t think “it worked”. Now they are doing a special dividend at ALC.

 

Mostly it seems they think value investing is out of favour and when it comes back in favour the discount will shrink on its own. To me that just seems like an opportunity lost.

 

I suggested they buy as much EVT they can at par. It would increase their ownership of the ELF shares held there and would be a quasi buyback without impacting ELF shares and then do a SIB on ELF shares.

 

Another shareholder suggested a normal course issuer bid and a phone number shareholders could call if they want to sell a certain amount of stock. They would have a weekly block exemption.

 

Another shareholder wants all the dividends passed through. ELF started taking big dividends from Empire Life last year and his argument was the dividends not paid out are only worth 57 cents on the dollar because of the NAV discount.

[mjm]

have they been buying any more ELF in the investment funds UNC or EVT, of which they are slowly accumulating I believe?

[SafetyinNumbers]

have they been buying any more ELF in the investment funds UNC or EVT, of which they are slowly accumulating I believe?

 

No, they haven't really used those to accumulate ELF recently. I don't think UNC has ever owned any.

 

EVT does own ~9.5% of ELF but they haven't added any since 2012, as far as I can tell.

 

ELF does slowly buy shares of UNC but that has slowed to almost nothing lately.

 

 

[mjm]

reminds me of nwli of which i own some. 

 

I believe i remember ( think anyway as mind may be going) and I tried to google but could not find that Jackson at one point( think in early '90's) bought out an investment company I believe in canada that I believe he owned quite a few shares of.