I may have been a little bit hasty a couple of weeks ago. As my readers may recall, I bought FGL post IPO in January. I then sold them as the market was selling off and made a very modest profit. I think I sold them at $19.80. They are now $20.75. But it is not the missed 5% gain that I am thinking about. It is their first earnings report as a public company. I found it very interesting. Their book value is pushing $25. They are financially strong (rated A+ by AM Best). They made over eighty cents in the quarter. They are planning to grow. They are highly leveraged to interest rates (my read was that they have $17 billion of invested assets, but only $1.5b of net worth). S if rates go up, while it may impact their book value negatively, the reinvested cash flow should be at higher interest rates.
I am planning on doing a little more research (I should have some time tomorrow as we have a major storm hitting the Northeast). But I may take a substantial position in them. Not a super sexy company. But if they can grow 15% a year and can move from a discount to book value to a premium to book value! this could be a 50% gainer in two years.
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6 comments:
anything new from your research? this one intrigues me as well...
I was concerned that they had $600m of intangible assets. I wanted to understand better what those were as that was about 50% of their total equity. It was not goodwill (which I give little credit to). Instead it was VOBA (Value of business acquired) and DAC (Deferred acquisition cost). My reading was that these really do have value, so I feel better. Of course you should do your own diligence.
Interesting... still need to do more digging for myself. Thanks for the spotlight on this though!
Joel
I'm bothered by the fact the income from premiums is down year over year (would not expect that from a growth company) and expenses are up so dramatically. Yes, they made .87/share but LY was 2.35. that seems scary to me but I don't much about their business model beyond premiums received and gain off investing that money against their expenses. Am I missing something?
joel
I have not dug into the exact numbers, but when looking at insurance companies - you often want to look at "operating income", which I think went from 68 cents to 89 cents. Operating income excludes the impact of the value of bonds swinging around every quarter. If you think about a life insurer, they have a lot of bonds as invested assets. I expect interest rates went down in 4q2012, which would have caused bond values to rise pretty significantly, thereby inflating income. If an insurance company does not intend to sell those bonds; they can carry those changes in AOCI. So bond values do matter - as they impact book value and credit worthiness of a life insurer, but they can cause income to swing quite a bit quarter over quarter (especially in current environment like 2nd quarter 2013 when they increased 100 basis points); so are often excluded for comparative purposes.
Thanks for the perspective. I will re-look at their filings with that lens. I appreciate the lesson!
The flat premiums still worry me though...
Joel
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