FritsiP schreef:
Hier het hele transcript van Einhorn's speech:
Let’s move onto a long idea, Delta Lloyd, which is the name of a Dutch insurer and should not be confused with delta of Lloyd, which Investopedia defines as the difference between the golden CEO’s pay, and what the Fed thinks he should be paid.
The basics of Delta Lloyd is a Dutch financial services company listed in Amsterdam and operating mainly in the Netherlands and Belgium. The Bloomberg ticker is DLNA. It has 167M shares outstanding and trades at 70% book value, 6x earnings, and has a 6% dividend yield. Delta Lloyd reports embedded value, which is essentially the discounted value of the existing book of business. At 32 € per share, it means the shares essentially trade at half the runoff value of the company assuming it writes no new business.
Delta Lloyd has over 40B€ of its own risk assets and manages over 70B€ funds in total. It’s primarily a life and pensions business, with about 30% of operating earners coming from the property casualty insurance asset management in banking.
While S&P only rates the group single pay, its insurance entities hold on average 2.3 times the amount of capital required by the regulator at the subsidiary level and 40% more than Delta Lloyd’s own minimum target. Delta Lloyd has only 15% net to equity versus peers typically having 2-3 times as much. Delta Lloyd’s strong capital position and focus on the long-term pension business enables it to take a bit more investment risk than others.
Unlike many other life insurance companies, Delta Lloyd shareholders, rather than policy holders, get to keep any excess investment profits beyond the explicit policy holder liabilities. This is entirely appropriate given the 20-year duration of the liabilities. In practice, this means that Delta Lloyd invests about 80% of its assets in traditional fixed income and 20% of its assets in real estate and equities.
During the recent downturn, Delta Lloyd did a superior job at managing risk, and it was the only major Dutch financial services group that did not require a bail out from the state. Delta Lloyd employs good risk management practices that is a book of defensive equities of 4% dividend yield and low double-digit multiple of earnings. The fixed-income portfolio has minimum exposure to southern Europe or Ireland- they avoided trouble in the European periphery well before others realized the risk.
In 2010, Delta Lloyd out-performed its investment expectations by 120 basis points. It might not sound like much, but that generated over 1 year of additional earnings, which totaled 3.75€ per share, giving the stock value today a PE of less than 5.
We don’t need to assume that started out performance going forward in order to like the shares. We assume a little less than a 5.5% return for Delta Lloyd to earn 2.55 this year. Every 1% move in its equity portfolio adds .20€ per share to earnings. Delta Lloyd manages the downside risk in routine purchases of out of the money puts.
I think that the main reason the shares were available at probably less than half what they are worth is that Aviva, the former parent still owns 43% of the company and everyone knows it’s a seller. We along with our investment banker called Aviva earlier this year and expressed an interest in buying all the remaining stock. We were surprised when instead they announced an accelerated book build and sold 25M shares to Goldman and Morgan Stanley at more than a 12% discount to the market.
They still hold 43% of the company which continues to be in overhang. The stock seems to be poorly placed as the stock now trades below the placement price. Aviva didn’t return our investment bankers’ follow up calls, so we don’t know why they prefer to sell stock so sloppily and at such a discount. Delta Lloyd has a solid management team and is well positioned. I believe the stock is quite attractive and overly discounts the overhang, which we would love to help eliminate. We remain interested in buying or helping Aviva place the remaining stake, and would pay at least the current market price to do so.
www.insidermonkey.com/blog/2011/06/02...