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National Western Life Group, Inc. Message Board

  • denniscloeser denniscloeser Nov 11, 2012 6:42 AM Flag

    to pmlljl

    I have some small disagreements with you but I have that with everyone who likes management of this company but first something you might like to read.

    I estimate the book value of NWLI at over $500 NOW. My reason is that around 1998 or so Bear Stearns wrote an evaluation which estimated that the (HIDDEN) book value at that time was some $75 below the stated book value. Having no idea what these hidden assets are or if they have ever been revalued to present proper valuation now, brings e to the conclusion the book value now is about $150 higher - at a minimum.

    This being said if you're looking for an increase in value of NWLI shares above 8 times earnings think you will be disappointed as no one I know trusts the moody's will ever do anything for minority shareholders (in this I mean the usual increase in dividends, the re purchase of shares or what has driven most managements to greatness the building up of new business;s or acquisitions)

    Without this show of management prowess or its own desire to see its stock higher the old guard of investors will continue to sell stock and will hold back new purchases as long as the moody's have a stranglehold on the company.

    Saying this my opinion on where the shares should be now is about $184 and not a penny higher until moody senior dies. At that time it will be wait and see if moody jr follows in his fathers footsteps or decides to get the valuation to its proper level.

    but 184 is still better then 140

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    • dennis:

      I appreciate your reply to my message. I think fschwedman40's explanation is the answer to the "hidden" increase in book value. I am in total agreement with his analysis.

      I am a value investor in the Ben Graham mold and I like to buy real assets, a style of investing that was popular after the 1974 market debacle. As the market rose for about twenty years the popular style of investing became much more concerned with what I call the "cult of growth". Today everybody wants stocks with very high returns on equity and very high rates of sales growth like Apple, Google, Salesforce, Chipotle, Priceline etc. In my opinion, this style of investing has reached an extreme leading to the era of Facebook, Groupon, Zynga etc. It is possible that the market could revert to a style more like traditional value investing. I look at a stock like NWLI selling at about six times earnings which is the equivalent of 15+% annual return on the market price of the stock and compare that to the return on government securities or cd's and it is obvious to me that NWLI is the better choice. In addition, buying real assets is much more secure than buying growth in income. For most companies, the income stream can change much faster than the balance sheet.

      I have my own reservations about the Moodys and I think their executive compensation is excessive, but if the market's preferred style of investing happens to change, the price of NWLI's stock could appreciate in a meaningful way to the point that the movement could even attract the momentum investor nuts.

    • I don't think there is anything concerning the book value that is "hidden." NWLI simply carries a big slug of its investment portfolio at cost, and many of these assets have a current value much higher than this cost. You can read all about this in the NWLI annual report towards the back where they compare "Carrying Values" vs. "Fair Values." Securities-Held-to-Maturity are undervalued by some $280 million when compared to "Fair Values", and Deferred Annuity Contracts (a liability) are overvalued by some $340 million. Taken together, the $620 million in additional equity if marked to these "fair values" would increase book value by about $170/share, pretty much as you guess.

      I think NWLI management feel these "Securities-Held-to-Maturity" assets will not be sold, so they prefer to ignore the mark-to-market values. These securities are probably long-term bonds that bear a high interest rate and that NWLI has held for quite awhile. I don't know what the rationale is on carrying the Deferred Annuity Contracts at higher than market values.

    • oops the hidden book value was $75 above the stated value in 1998 and my guess it is at least 150 higher now. sorry for the confusion

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