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National Western Life Group, Inc. Message Board

  • BenGrahamMan BenGrahamMan Dec 20, 2011 4:34 PM Flag

    Institutional owners should question NWLI mgt

    In light of todays filing of NWLI's 2012 Bonus Program, I write the following:

    I am cool with executives being rewarded for their success. Yet, the compensation, I think should be paid out in shares, and not cash. Wouldn't this go with NWLI's thesis of a "fortress balance sheet?"

    I think investors should consider teaming together to make a more organized effort to get
    management to explicitly discuss their strategy of not buying back stock that is trading at 38% of book
    value. I can not fathom a better use of capital than buying dollars for thirty eight cents.

    When one isbuying at less than 40% of book value I think they have a lot of cushion built in. This cushion leaves
    room for potential balance sheet impairment of certain assets.

    It doesn't make sense to me, for any logical reason that management has decided to not buy back
    stock. You also have some insider selling, albeit small, from Moody (200 shares sold filed on 11/15)
    and Lacey (Sr. VP and Chief Actuary 320 shares sold filed on 11/17).

    NWLI presents most of their investments at amortized cost. In the footnotes of each quarterly or
    annual filing they present fair value and amortized cost. IIRC, fair value is higher than the amortized
    cost presented on the balance sheet. Most of their investments are level 1, hence you can somewhat
    probably rely on the values being presented. On top of that, you have book value of $351, which I
    think brings in a huge margin of safety.

    They have consistently grown shareholders equity since 1956. They had their AM Best ratings raised
    and continually affirmed, even during the financial crisis, when most other life insurance companies
    were being downgraded. They continue to build a fortress balance sheet. NWLI claims they keep the
    dividend low to keep the balance sheet fortress like.

    What I don't understand is why they refuse to buy back their own stock, or at least announce a plan.
    NWLI is currently trading at 38% of stated book value. If management was confident in the future of
    the business, it makes no sense to me whatsoever to not buy back shares. I can not see a better use of
    capital, assuming that all is good under the hood at NWLI.

    Management has been stubborn on this, and I just don't get it. The BOD did address this issue, and
    claim they are just looking to maintain a fortress balance sheet. To me, that is short sited. Unless the
    reason is that they don't believe in the future of NWLI.

    If they announced a share buy back, I think the price would immediately go to $200 per share. NWLI
    wouldn't even have to buy that many shares, as only incremental demand would probably increase the
    stock price.

    Management could easily make a buy back plan, and indicate that they will buy shares anytime the
    price to stated book value is for example < 50%.

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    • >>>In light of todays filing of NWLI's 2012 Bonus Program, I write the following:

      I am cool with executives being rewarded for their success. Yet, the compensation, I think should be paid out in shares, and not cash. Wouldn't this go with NWLI's thesis of a "fortress balance sheet?"<<<

      The purpose of a bonus is to give management an incentive for good long term performance. Yes, the performance should be paid in shares. The managers should not be allowed to cash those shares out for at least five years. A major part of top executive bonus should be based on five year performance. Key components for top executives should be measures of return on capital and the five year total return to shareholders. This would ensure management was looking at what would be the best uses of capital.

      That will not happen here. Unfortunately the people who are getting paid the bonuses are the same people who are writing up the plans. In the ideal situation the chairman would be independent from the officers and his/her responsibilities would be to represent the shareholders. One of the major duties would be to have a good incentive plan that encouraged long term performance.

      The fact that this is a family controlled business, the chairman and the ceo are the same person, and it does not appear capital is being allocated properly and shareholders are not being told why, are all contributing to a low stock price.

    • Welcome to the club Ben.

      Maybe now you will realize why I have been screaming at you and all other would be shareholders of NWLI that the only way you will see some improvement in price is IF enough shareholders get together and begin a shareholder suit for hoarding and mis management aganist moody and Company.

      You are now halfway on board when you get completly on board this exercise will start to become fun.

      Or, you can wait for mr moody Senior to die like most of the holders here.

    • BenGrahamMan:

      I am in full agreement with your analysis. In support of your reasoning to buy back stock, I would like to mention that Berkshire Hathaway recently announced a plan to buy back its stock if the market price of the stock was not in excess of 110% of book value. NWLI is probably not equivalent to Berkshire, but we are not asking NWLI to pay 10% above its book value ($350 + $35 + $385). I reiterate my statement from a prior post, that if NWLI bought its stock back in the $130 price range it would be equivalent to earning a 60% AFTER TAX profit margin. How is NWLI ever going to accomplish that anywhere else?

      So sign me on as the first enlistee to get management to buy back its stock.

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