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Old Republic International Corporation Message Board

  • ori.investor ori.investor Jul 27, 2012 9:44 PM Flag

    Reason to buy

    I understand that people want to look for hidden liabilities and be careful that they aren't overlooking something. But I think it's pretty straight forward - the subsidiaries with the issues are isolated from the rest of the company and they can't bring down the corporation - and their losses can't stop the dividend from being paid.

    I admit that the momemtum is down, and there are many, many companies that will be better investments in the near term than a stock that is dead in the water, paying a 9% dividend.

    But I wouldn't be looking for problems that don't exist. ORI had more than enough earnings in the non-MI divisions to pay the dividend in 2008 and 2009, when the financial system was imploding. I know there are no sure things, but IMO the dividend is secure.

    For patient, long-term investors, this is exactly what you want - investors are shunning the stock, so the valuation is cheap and the dividend yield is high. It's a clunky industry that's been around for centuries, so no one cares about it. But the longer it takes to turn around and the dividend stays high, all the better.

    FWIW, this stock tripled in 2000, when the tech bubble was bursting, after property casualty companies had been in a 2 year bear market. No one talked about it then and no one will talk about it when it enters its next bull run. This company is invisible to hot stock investors. But it can make you a lot of money.

    I highly recommend this Jeremy Siegel book to grasp the strategy of buying out-of-favor dividend paying stocks, and how it works long term: "The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New (2005)."

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    • I think everyone want to know HOW MANY SHARES YOU OWN - LONG? If you cannot answer that one question, why should anyone care what you say. NEGATIVE, NEGATIVE, NEGATIVE. All you are doing is pushing the Stock Value down. So tell us all, ARE YOU SHORT OR LONG?

    • The only part that I dont agree with is whether the CCI related subs are really walled off and cant further erode capital or dividend paying capacity. If we take their word for it on MI, then that takes are of one portion. But my main sticking point is CCI related.

      I know they have said they wont put more capital into RFIG, but I dont believe any claim has been main about CCI subs being walled off and no erosion of capital. Also, about the legal reserve being enough, etc. So there is still exposore there, unless those subs are something that they could just throw away like the MI.

      • 1 Reply to kevinf1_99
      • Kevin, Ok, I'm slow at times. I see your point now. Yes, you are correct, if there's a CCI lawsuit, I do believe the corporate entity is on the hook. At least when the spinoff was announced, that was the case.

        It's Miller time (red wine time) so I'm not really into doing DD at the moment. Plus Al talks so slowly that it might take me several hours to find it even if I was in the mood to listen to his comments on past conf calls on the spinoff.

        Are you saying there is a current lawsuit or a potential lawsuit? Bank of America has sued on the MI payments. But is there another lawsuit on top of that against CCI? And if so, how much is it for?

    • agree - I assume it is BOA. I will say, from a BV standpoint, I believe it is still a somewhat compelling value even if you chop off an extra $400M for CCI exposure and of course assuming MI only goes to zero. Of course, writing off the intercompany exposure though (200M).

      I do wonder why they havent reserved the intercompany exposure? Seems even if run-off could be positive, it doesnt mean loans would be paid back.

    • ORI would have no problem raising money if they had to go into the capital markets. This isn't September, 2008, when Shearson had just collapsed - the credit markets had dried up - and ORI was a 2nd tier shopping mall needing hundreds of millions as a dark cloud hung over all retail and consumer activities.

      But if Old Republic WAS all that...they could have still found all the money they needed in September, 2008. A small shopping mall REIT did just that:

      http://www.snl.com/irweblinkx/file.aspx?IID=103092&FID=6746303

      I guarantee you ORI has contingency financing plans in place. And they will be favorable terms. And they probably won't need them anyway.

    • I don't really think of this as leveraged - net debt to EV of about 14% - I think you'll have a hard time finding a less leveraged REIT. I guess there is a certain amount of 'event' risk here, although I think it's exagerated. But no denying it's been a big time dog so far. At this point if it just trades flat for a few years, I'd be ok with the 9% yield.

    • well they won't write it down and take reserves unless they thought they had a low probability of running off +tive (w the 200mn+interest)...and they are trying to keep NC convinced of that so as to keep it afloat with the DPO

      who was it, Rumsfeld that said its "there are things we do not know, we don 't know" and with ORI and Aldo that is what you get...keep it murky and coupon your way out of any problems.....

    • which means, if we take them at their word, that it has to do with the BOA suit....i saw they had a judgement against them where ORI was trying to compel discovery on every loan in the pool which was shot down by the judge.....interesting.....

    • fair enough, but even on that basis with $3.8 billion equity against $12.4 bil in liab and $16 bil assets (as of Q1, think ratios improved somewhat in Q2), not especially leveraged relative to other financials. If you can fine a REIT or MLP paying 9% with similar metrics would be interested. The Mortgage REITs are more leveraged (9x asset to equity avg for agency MREIT).

      I do follow one REIT, CWH, which yields more than 10% here with less leverage, but I think the dividend is less sustainable than at ORI. ORI only pays out about 70% - 80% on average of income dividended up to parent -- REIT coverage tends to be much thinner, with 90% of taxable income payable as dividends by law - MLP coverage also tends to be thin.

    • I agree the price action seems good. Although, again, my perspective seems to be the minority in that I am more concerned with the lack of visibility into the CCI exposure, than MI. I actually agree with the MI stuff being contained and dont see new capital going into that business. I just want to have the same feeling on the CCI stuff (especially after the big increase in the last Q for the expense).

      Waiting to read the actual quarterly filing to see for more specific details.

    • ORI corporate has no intentions of giving the diseased entities any more capital. The MI business can go under as far as I'm concerned. The MI piece is in de facto bankruptcy now. A bankruptcy court would control the cash flow and allocate resources, just like NC is now.

      If they pulled the plug on it, we'd find out once and for all if ORI corporate had any hidden liabilities. I don't think they do - I think the MI obligations would die with it. Which is why IMO regulators will keep in in runoff. But if they go into bk, let it happen.

      I think the market took a look at MTG today and thought Aldo made the right choice to abandon that business. ORI was threatening to go green most of the day. If you start looking at the stock technically, it's starting to appear that we've bottomed. With a major selloff earlier in the day and the hideous MTG news, if people were looking for a reason to dump ORI shares, it would have happened today.

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ORI
14.91+0.12(+0.81%)Sep 15 4:01 PMEDT

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