Blue Horseshoe Loves United Fire Group by Monkey with a Pen
Recommendation: Scale In
1. Core Thesis: Small company (748M) market cap and minimal analyst coverage. Well managed and executes well. Had some difficulty during the financial crisis but is adequately capitalized now.
2. Crucial Factors: a. Valuation; Likely to continue as a going concern: Yes; Economic franchise: Yes; WACC: 3.76%; Normalized FCFPS: $4.13; Valuation method: Earnings Power Value; Earnings Power Value: $148.21; b. Potential Upside: $359
c. Margin of Safety: 1200%; d. Certainty: 71%; e. Time: ~3 yrs
3. Secondary Factors: a. Pristine Balance sheets: 20% equity/asset ratio, imputed credit rating AAA; b. Large cash balances: excess cash / share ~$4.68; c. Good growth prospects: moderate, estimate ~9%/yr; d. Seasoned Management: Pres/CEO has 7 yrs in position and 10 yrs with company; e. Large Product Base: full line of property, casualty and life products; f. Large Customer Base: domestic g. Defendable Competitive Position: yes; h. Share Repurchase Program: shares outstanding remain relatively constant; i. Insider Buying: 4 purchases and 10 sales witha net purchase of 13k shares; j. High ROIC that generates FCF: med ROIC, 11.46% vs 3.76% WACC, generates FCF
4. Hygiene Factors: a. Market Cap: $748M; b. Analysts: 2; c. Bulletin Board Activity: minimal, 1 thread in last 3 months; d. Accounting issues: none; e. Director/officer pay: normal, CEO $612k; f. Main shareholders: DFA, Earnest Partners; g. Dividend yield: good, 2.4%