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Strategies & Market Trends : Value Investing
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To: Investor2 who wrote (16136)1/11/2003 5:49:17 PM
From: Bob Rudd  Read Replies (2) of 78594
 
I2 - RPM: The great revelation here is not soaring asbestos claims like we've seen elsewhere. Quite the contrary - current trends in claims are down. The revelation was that insurance assets are likely used up in calendar 2004 so the 30mm run rate would be 100% picked up by RPM rather than 3mm which is current cost based on 90/10 sharing provision with insurers. Three scenarios drop out of this: continuing 30mm run rate in costs; legislative relief coming out of hearings scheduled for Feb [Republican admin + congress + outrageous plaintiff's bar actions getting settlements for people with no symptoms + at least 1400 companies with signficant exposure makes action more likely in 03 than any time in recent memory]; or trends become more negative as no relief is forthcoming and the plaintiffs bar focuses on the dwindling pool of solvent targets. I ran the numbers based on current run and tax rates, assigning .5, .3 & .2 probabilities and come up with expected EPS of 1.12 when insurance assets are gone - not exactly the end of the world:
(113.5*2-30)*.65/115=1.11 Current run rate
(113.5*2-10)*.65/115=1.23 Reduced by legislative relief
(113.5*2-50)*.65/115=1.00 Increased by unchecked litigation
1.11*.5+1.23*.3+1*.2=1.124
[Note that I didn't factor the 3mm of the 30mm that is already in their EBT run rate - so the 30mm is 10% high for conservatism]
I reduced my position by ~40% in October over concerns that insider selling might be a harbinger of not such good news. Now that the cats out of the bag, I'm gonna watch it closely.
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