Blue Horseshoe Loves National Western Life Insurance by Monkey with a Pen
Recommendation: Scale In
1. Core Thesis: Small company (872M) market cap and no analyst coverage. Well managed and executes well. Remained profitable through the financial crisis.
2. Crucial Factors: a. Valuation; Likely to continue as a going concern: Yes; Economic franchise: Yes; Valuation method: Earnings Power Value; Earnings Power Value: $876; b. Potential Upside: $636; c. Margin of Safety: 400%; d. Certainty: 83%; e. Time: ~3 yrs
3. Secondary Factors: a. Pristine Balance sheets: 14% equity/asset ratio, imputed credit rating AAA; b. Large cash balances: excess cash / share ~$35; c. Good growth prospects: low, estimate 0-6%/yr; d. Seasoned Management: Chairman/CEO has been with company since 1963; e. Large Product Base: full line of life insurance products as well as small amounts of real estate, nursing home and other investments; f. Large Customer Base: domestic and international through independent marketing organizations; g. Defendable Competitive Position: yes; h. Share Repurchase Program: no, shares outstanding remain constant; i. Insider Buying: 11 insiders bought 95k shares in last 3 months; j. High ROIC that generates FCF: low ROIC, 7.26% vs 8.26% WACC, generates FCF
4. Hygiene Factors: a. Market Cap: $873M; b. Analysts: no analysts; c. Bulletin Board Activity: minimal, 13 threads in last 3 months; d. Pension fund deficit: none; e. Director/officer pay: normal, CEO $3.8M, COO $1.4M, other officers in mid 6 figures; f. Main shareholders: Tweedy Browne and DFA; g. Dividend yield: small, 0.20%