Y - BrooklynInvestor has a post about Y. Overall, I am not very impressed. This reminds me why I skipped Y last time I looked at it.
The good news is that it's trading at 0.9 book
The bad news: their long term CAGR is only 8-8.4%. This is low. It's ok to opportunistically buy this at 0.9 book expecting reversal to 1.2-1.3 book. But as long term investment, their growth is too low. I am not really interested unless business has 10%, ideally 15% growth. Sure, there are exceptions, but we are talking insurance here, it's not as if this is a high moat business where you could be fine with lower growth because it throws off tons of FCF. (Hmm, I should probably dump the dinky banks on this argument too :))).
And this 8-8.4% was done during the huge tailwinds of dropping interest rates, rising bond prices. What are they going achieve now? They aim for 7-10%, but that's just the aim.
Also you can get prefs yielding 8%. Why would you go to equity for such return? The only way I see a higher return is market revaluing this at 1.2-1.3 book. Otherwise, you won't get much more than historical rise.
Question: On slide 6, it says that Y's debt is rated at Baa2/BBB/bbb+ Isn't this lowish for insurer?
Note: Last couple years have been rather brutal on (re)insurers book values. We had cats in 2011-2012 and then bond drop in 2013. I am not sure any of my (re)insurer holdings grew book at 10% in 2013. For some book dropped. |
