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

[SafetyinNumbers]

Thanks, Safety, the long term is way better than I thought. I was looking at the 10 year.

 

The 10 year shows decent outperformance over the S&P/TSX too (as measured by the XIU so I could include reinvested dividends).

 

I'm using this site below though so maybe there is a glitch.

 

https://www.canadastockchannel.com/compound-returns-calculator/

[mranski]

I was eyeballing Morningstar financials, eps, and NI, SINCE 09.

[SafetyinNumbers]

First decent insider purchase from the Jackman's in a long time.

 

https://www.canadianinsider.com/company?ticker=ELF

 

9600 shares at $737.50 takes holdings to 518,358 shares.

[mjm]

it says Canadian & Foreign Securities Co. Limited bought.  is this controlled by Jackman's?

[SafetyinNumbers]

it says Canadian & Foreign Securities Co. Limited bought.  is this controlled by Jackman's?

 

Yes, that is my understanding.

[spartan]

A few questions for the more enlightened ones on this message board:

 

1. As per SEDI filings, the Jackmans have been buying shares of ELF and EVT at a steady pace for years. Should these be viewed as buybacks in disguise? If so, what is the end game?

 

2. If they ever decide to go private, would they be legally required to offer minority shareholders a reasonable price for their shares? What protections do minority shareholders have when it comes to getting at least book value in the event of privatization.

 

3. For those that aren't particularly familiar with Canadian estate planning, how could the eventual passing of Hal be a catalyst?

[SafetyinNumbers]

A few questions for the more enlightened ones on this message board:

 

1. As per SEDI filings, the Jackmans have been buying shares of ELF and EVT at a steady pace for years. Should these be viewed as buybacks in disguise? If so, what is the end game?

 

2. If they ever decide to go private, would they be legally required to offer minority shareholders a reasonable price for their shares? What protections do minority shareholders have when it comes to getting at least book value in the event of privatization.

 

3. For those that aren't particularly familiar with Canadian estate planning, how could the eventual passing of Hal be a catalyst?

 

1. It's not a buyback but the family never sells any shares so the supply is removed. So theoretically, the price should rise if demand is the same. That being said, there is no accretion to NAV benefit that helps all shareholders except if the shares rise, the discount will close. When the discount was much smaller, at an AGM, Duncan joked that because they are always buying stock, eventually there won't be any left and the discount should close.

 

2. They can offer whatever price they want but they would have to get the majority of the minority to agree to it. Perhaps that bar is low right now but I don't know if they want to be seen as doing a take under for their image. All the more reason to do substantial issuer bids every few years.

 

3. I'm no expert on Canada estate planning but I know on death there is a deemed disposition for tax purposes of all holdings. It's possible that back when ELF sold the P&C biz and paid a special dividend, they might have done an estate freeze at that point and paid a lot of tax. The stock really hasn't gone up much since then (even though the NAV has) so they might have very little tax to pay now. It's just a theory and no evidence to back it up. The Jackmans seem very practical so I don't think it would be surprising if this was the case and if it was actually Hal's idea.

[Cigarbutt]

Disclosure: I've only followed superficially since the sale of the property-casualty unit but this has been, effectively, a privatization in slow motion.

 

The privatization could be tomorrow or could be, essentially, never but it's hard to actualize the value of the discount closing. The return going forward will tend to correlate highly with life insurance results.

 

The Jackman family is not exactly transparent but it is reasonable to assume that they've set up their affairs with a permanent state of mind:

https://www.empire.ca/sites/default/files/2017-05/CapYourTaxesWithAnEstateFreeze-EN-web.pdf

[mjm]

does any one know what the number "97-other" means under Jackson's stock trades in inside trading?

[mjm]

< In a typical corporate estate freeze, the owner of the common shares of the company will exchange those shares for fixed value preferred shares. By making the appropriate elections under the Income Tax Act, the exchange of the shares will not be taxed until the freezer dies. New common shares (and the eventual tax on future growth in value) will be issued to the freezer’s children or grandchildren> 

 

above from posted address that  Cigarbutt posted.

 

it would seem from my limited knowledge that if jackson has indeed frozen assets per buying preferred(of which he appears to have done quite a lot of lately) and if the amount is indeed frozen it would possibly behoove the heirs to get the value of ELF closer to its fair value whereby the future taxable value may be less once it comes into their possession versus the much discounted value of present.

[SafetyinNumbers]

< In a typical corporate estate freeze, the owner of the common shares of the company will exchange those shares for fixed value preferred shares. By making the appropriate elections under the Income Tax Act, the exchange of the shares will not be taxed until the freezer dies. New common shares (and the eventual tax on future growth in value) will be issued to the freezer’s children or grandchildren> 

 

above from posted address that  Cigarbutt posted.

 

it would seem from my limited knowledge that if jackson has indeed frozen assets per buying preferred(of which he appears to have done quite a lot of lately) and if the amount is indeed frozen it would possibly behoove the heirs to get the value of ELF closer to its fair value whereby the future taxable value may be less once it comes into their possession versus the much discounted value of present.

 

If I understand you correctly that would mean paying more tax now and thus getting less inheritance to compound over time, wouldn’t it?

 

I think they used the 97-other code since the preferreds seem to be moving from one hold co Or trust he controls to another.

[mjm]

possibly i do not understand this freezer law, but if Jackson exchanged common for preferred stock set in value and upon death common shares are issued to the heirs ( assuming a convertible preferred?) and the basis of the stock for the heirs is at a higher price that is closer to NAV, would that not be to the heirs benefit?  I have no idea if the stock basis gets bumped up to market value, but that is what I am basing this on. i may not be expressing myself very well so please be patient.

[Cigarbutt]

^The fiscal setup is probably very complex and sophisticated.

1-The "97-other" code is simply a code different from the typical "10" you would put on the insider trading form and which includes situations where the security is bought through a trust, a private holding or for a separately managed account.

https://www.sedi.ca/sedi/new_help/english/public/Glossary/Nature_of_transaction_codes.htm

2-You have to differentiate the preferred securities that were issued by ELF or any other related public issuers from the preferred securities that would be issued privately in relation to a re-arranged capital structure of a trust or private holding in the context of an estate freeze, a holding which, itself, would own various securities (common, preferred or whatever public or private). The estate freeze is a private transaction that results in 1-the preferred shares being freezed (tax point of view) and being linked to a fixed income with the owner/founder and 2-common shares that "belong" to the next generation(s). The freeze can be flexible and dynamic but the complexity may give rise to a certain level of confusion with the notion of control.

Take the following:

-from last proxy, when the main table seems to indicate that insiders own very little. From the footnote:

"Companies in which The Hon. Henry N.R. Jackman has an indirect interest, control, in the aggregate, 2,926,009 or 72.8% of the outstanding Common Shares of the Company. Although The Hon. Henry N.R. Jackman is associated with some of these companies, he does not control any of them and, accordingly, does not have beneficial ownership of the Common Shares of the Company held by them."

So, does he control or not?

-from the last annual report, under the related parties section:

"The Company has investments in related parties which includes investments in associates of $334,913 (2017 - $330,050) and investments in other related parties within investments - corporate of $785,176 (2017 - $853,707). The ultimate controlling party of the Company and these related parties, is The Honourable Henry N.R. Jackman together with a trust created in 1969 by his father, Henry R. Jackman."

So, the ultimate control is with the Honourable but how this is defined is certainly more clearly defined in other documents.

3-For clarity, I assume that the set up is legal but wonder if the family trusts and various private holdings do not aim, at least in part, to explore the limits of fiscal constraints. The other day, I was discussing with somebody who had to complete due diligence in a certain Mediterranean country in order to arrange financing for a specific transaction. There was some difficulty with some numbers. After some resistance, the counterparty offered the following remark: "So, which financial statements do you want? the public ones? the banker ones? the tax ones? or the family ones? Again for clarity, I'm not suggesting something illegal but the setup is likely to be VERY complicated and likely contains an off-shore theme.

[mjm]

thanks for reply.  maybe i should just listen. :-)

[SafetyinNumbers]

More size insider buying but through private trades.

 

24,100 shares in total from one of the holding companies and Mr. Jackman.

 

Volume was big (for ELF) on Friday as well but not clear if that was insider activity as well.

 

 

https://www.canadianinsider.com/company?ticker=ELF

[Philbert77]

I have a question. Does anyone know or can speculate why Hal Jackman would be purchasing the preferred shares? How would that benefit him versus purchasing the common shares?

[SafetyinNumbers]

I have a question. Does anyone know or can speculate why Hal Jackman would be purchasing the preferred shares? How would that benefit him versus purchasing the common shares?

 

I assume it’s just because he wants more income and he knows it’s “risk free” versus the actual risk free rate. The after tax advantage on that income is pretty huge.

 

Just a guess though.

[SafetyinNumbers]

Big earnings from Empire Life yesterday on some assumption changes. They also paid out a big dividend to ELF.

 

NAV should be up strong when ELF reports, making the NAV discount even bigger.

 

https://www.newswire.ca/news-releases/empire-life-reports-fourth-quarter-and-full-year-2019-results-884996343.html

 

https://www.newswire.ca/news-releases/empire-life-announces-q4-2019-and-additional-dividends-807798210.html

[StubbleJumper]

I just pulled up the US fixed income rates from Bloomberg a few minutes ago.  If rates keep falling, it won't be long before insurance companies will be better off keeping their reserves under the CEO's mattress.  It's a bit of a tough environment for a lifeco.

 

 

SJ

[SafetyinNumbers]

Q4 results are out.

 

Highlights are:

 

- NAV is up to $1486 (up from $1421 at 9/30/20)

- special dividend of $25 on top of regular dividend of $1.25

 

https://www.newswire.ca/news-releases/e-l-financial-corporation-limited-announces-december-31-2019-financial-results-883064054.html

[SafetyinNumbers]

I’m amazed ELF and EVT both announced NCIBs on top of the special dividend yesterday.

 

https://www.newswire.ca/news-releases/e-l-financial-corporation-limited-announces-normal-course-issuer-bid-843178871.html

 

https://www.newswire.ca/news-releases/economic-investment-trust-limited-announces-normal-course-issuer-bid-830547874.html

 

 

[StubbleJumper]

I’m amazed ELF and EVT both announced NCIBs on top of the special dividend yesterday.

 

https://www.newswire.ca/news-releases/e-l-financial-corporation-limited-announces-normal-course-issuer-bid-843178871.html

 

https://www.newswire.ca/news-releases/economic-investment-trust-limited-announces-normal-course-issuer-bid-830547874.html

 

 

Maybe the Jackmans view the current situation as a way to buyout a large chunk of the minority holders at half of book?  Really, the discount is getting silly...

 

 

SJ

[spartan]

I have a question. Does anyone know or can speculate why Hal Jackman would be purchasing the preferred shares? How would that benefit him versus purchasing the common shares?

 

I assume it’s just because he wants more income and he knows it’s “risk free” versus the actual risk free rate. The after tax advantage on that income is pretty huge.

 

Just a guess though.

 

I assume it's also because they've done an estate freeze. Hal doesn't want his kids to pay capital gains on future appreciation of his common shares.

 

By buying pref shares, he earns a guaranteed 5-6% yield (as mentioned by Safety) and minimizes taxes by avoiding capital gains.

[SafetyinNumbers]

The surprise special dividend and first ever NCIB might have changed the narrative. We'll have to see if they are aggressive with the buyback.

[wisowis]

The surprise special dividend and first ever NCIB might have changed the narrative. We'll have to see if they are aggressive with the buyback.

 

In retrospect, probably should have been obvious that they'd begin to start returning capital to shareholders, after they purchased a large block of shares for themselves from capitulating shareholders at a record discount to book.

 

As Mark Leonard would say, treating shareholders like "prey instead of partners".