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Stewart Information Services Corporation Message Board

  • gfs1354 gfs1354 Jan 25, 2012 12:15 PM Flag

    Bullish case for STC

    I heard about STC from another yahoo poster on another board.

    As far as I can tell the bullish case for STC is that the company will be making $40m to $50m a year within a year or two. The factors that will bring this about include:

    The company's recent policy to cut out the worst performing 3rd party agencies (that caused much of the losses in previous years),

    Reductions in payroll costs due to redundancies (the full benefit of which have not yet been felt),

    An increase in the premiums split received from 3rd party agencies,

    A major improvement in underwriting loss ratio down from the current 9% to the pre RE bubble and longer term ratio of 5%. Management say it takes about 3 years for losses to work through the system. The bad underwriting during the 2005 - 2007 period (fraud, poor quality 3rd party agencies etc) will soon be behind the company,

    An increase in premium rates charged to customers,

    Advances in technology should enable Stewart to reduce the administration costs of doing their work,

    The US commercial property market has already started to grow again,

    The company’s property information business is growing rapidly and is low risk,

    None of the above requires a normalisation of the US residential RE market. This would be additional upside to profits. It is worth noting that Warren Buffett's current view is that US residential housing will recover quicker than most people think. Buffett argues that there are about 1.2m house formations in the US each year. In recent years around 600,000 new homes have been built per year. This under building is eroding the stock of houses in the US. Buffett thinks a recovery will come in 2012.

    The company has very little debt and is profitable, even with the current extremely difficult business conditions. The company can therefore survive to enjoy an upturn in the industry.

    I think STC is easily worth twice the current market price and probably more. Longer term it is a nice company to hold as it will benefit further from the eventual increase in the residentail housing market.

    I would be interested in the thoughts of others who have followed the company a bit longer than me.


    Disclosure - I am long STC

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