I am a large TW stockholder. I am dissapointed with the price as I am sure you are with MCY. 12x earnings? I think with the safety of these companies they should trade at 16X forward. What do you think? If I can get some MCY holders to buy TW as well then that helps me. MCY is a good company.
Funny how yesterday TW had a 40% edge in rate, and now you say the published rates are similar. You are a proud TW supporter, and I respect that. Leave it at that, and stop the deceptive MCY bashing. By the way, somewhere around 90% of Mercury drivers are "Good Drivers," so I'm not sure what you are talking about when you compare TW's pool with MCY's pool. In absolute numbers, Mercury has more good drivers than TW. We have more "Non-Good Drivers" too.
TW is an excellent competitor. MCY is also an excellent competitor. How about leaving it at that. And, you probably don't want the California DOI to know that TW is using Credit History. That's forbidden as an underwriting criteria. I understand you can use it to qualify for payment plans, but using it to affect underwriting eligibility is not allowed. Payment plan eligibility does provide a company with the ability to use credit to effectively drive away drivers who are not able to pay a policy in full, but the market conduct auditors may take a dim view of that practice.
MCY la The published rates of TW and MCY are similar. TW has an advantage when discounts are applied like associations, driving violations, credit histories......TW has traditionaly sold to a lower risk pool....and we reward our good drivers with extreemly low rates. However now, we are beginning to write to a higher risk pool (MCY'S) customers. We will use our low cost structure to add "bad" drivers at higher rates. While our expertise is limited in this risk pool we feel confident that with our 1.5 million excellent drivers we can leverage into your market. Growth is the key for all auto writers both geographically and by risk pool diversification.
Great management, great management, great management, great company, great balance sheet.
Notwithstanding the above, one should note that there were $0.14 of realized gains and about $0.23 of favorable prior period reserve adjustments (taking the $25mln H1 and dividing it by two), so that Q2 looks like $1.06. California premiums were flat Q2 vs Q1 so all the growth is coming from outside CA.
It looks like we are at the top of the insurance cycle. The real test will be how well MCY manages in the next 12-24 months in what promises to be a much more competitive environment. If they can deliver 10% eps growth even in a competitive environment, then they probably are worth 15x 2005 earnings (e.g.$60-65) by year end.
Dividend is very well covered and should continue to grow at 10%-20%; MCY can easily afford 50% payout raio as they have substantial excess underwriting capital.
Also, George Joseph is not immortal and I suspect that upon his demise the company will be sold and would probably fetch 2.5x-3.0x book.
One thing is certain, however, is that if there is one company in our portfolio that I have NEVER worried about from a coprorate governance viewpoint, it is Mercury. Their books are undoubtedly squeaky clean and I believe that they have the most accurate and appropriate reserves of anyone in the industry. Although it won't happen, I believe that MCY deserves some modest valuation premium just for the "peace of mind factor".
The call will be interesting insomuch as prospects in growth areas (FL, TX, NJ, PA) are discussed.