I agree with much of what you wrote. I have asked several times to meet with president and ceo, and was denied that request.
Let me rephrase to what I should have written:
I hope Mr. Moody lives past 100, and works as the leader of NWLI for as long as management, employees, fiduciaries and shareholders want him there.
Argggh, Yahoo.... What I also wrote was that the reasoning you give I have only heard from you. I will go on record stating that I hope Mr. Moody lives past 100, and works as the leader of NWLI for as long as management and employees want him there.
FE desires to keep an approximate 50/50 debt to equity ration. They are looking to invest $2.8B in a regulated area. Perhaps they won't get an allowable 11% ROE, but certainly a 9% ROE. This is pure growth, with predictable dilution. Even with dilution, I think this will be accretive. A long term shareholder should welcome the investment, as well as the investment being prudently deployed with both debt and capital.
Standard 10Q. No surprises. Some economic and interest rate discussion. Slow and Steady, as it has been since I have owned (March 2011). Brazil situation still mentioned, very similar to past disclosures (seemed like slight wording changes). One slightly interesting item is the purchase of 12,350 shares at $208.27 per share. Only equates to $2.6M, but it is something. Will probably fight dilution as options at $150 per share will be exercised soon, before expiration. You will probably see insider selling, but will probably be based on option shares exercised. Still long, and I don't anticipate any changes to that. Yet, you never know.
I did not see any surprises other than the stock price decline yesterday. They are looking to expand, as utilities do, and that will require both debt and equity. In turn they will get an allowable ROE. As mentioned below, there are rumblings that ROE has been greater than allowed, and that could result in a rate reduction. Something like that, typically shouldn't change the long term value of the company.
“Moody's changed FE's outlook to negative from stable in late February 2013 to reflect headwinds facing the consolidated entity. While FE has taken steps to address some credit concerns, we continue to await the outcome of its Jersey Central Power and Light (JCP&L: Baa2 senior unsecured, negative) subsidiary's rate case prior to reconsidering the outlook.” Moody’s 11/11/13
“JCP&L is among FE's most significant subsidiaries, accounting for approximately 14% of revenue and approximately 20% of total distributions from subsidiaries.”
“There have been claims by parties involved in the rate case that JCP&L has historically earned in excess of its allowed return. As such, a concern is that a rate reduction could potentially be an outcome from the rate case. Given that JCP&L's financial flexibility has been weakened by the costs associated with Superstorm Sandy, a significant rate reduction has the potential to trigger negative rating outcomes at JCP&L and FE.”
In 1979, WalMart had $1.3B in Sales, a market cap of $465M, projected earnings growth rate of 23.5%, Net Profit margin of 3.3%,ROE of 22% and P/B was ~3X. (Source Value Line - March 14, 1980).
In 1995, WalMart had $105B in Sales, a market cap of $57.3B, projected earnings growth rate of 11.5%, Net Profit margin of 2.9%,ROE of 17.5% and P/B was ~3.3X. (Source Value Line - February 21, 1997).
In 2006, WalMart had $345B in Sales, a market cap of $225B, projected earnings growth rate of 10.0%, Net Profit margin of 3.5%,ROE of 19.8% and P/B was ~3.6X. (Source Value Line - November 5, 2010).
In 2012, WalMart had $469B in Sales, a market cap of $248B, projected earnings growth rate of 7.5%, Net Profit margin of 3.6%,ROE of 22.3% and P/B was ~3.3X. (Source Value Line - November 1, 2013).
In 2012, Amazon had $61B in Sales, a market cap of $165B, projected earnings growth rate of 49.0%, Net Profit margin of 0.2%,ROE of 1.6% and P/B was ~16X. (Source Value Line - August 16, 2013).
I think dividend will at best be put on hiatus. All focus will now be trying to convince policy holders are going to be paid if a claim is filed. If they are going to survive in an ongoing business, they must focus on making the balance sheet a fortress. Question is, can they survive without a reorganization. Reorganization would make sure policyholders are covered, and in such, shareholders could be wiped out.
Like all insurance companies, including Berkshire Hathaway, the reserves and actuarial assumptions used, could be subject to massive unexpected changes to policyholders and shareholders. The policy holder always comes first.
One quick way to look at the valuation could be, increase shares outstanding to 10M, shareholders equity will be around $400M. If that occurred Market Cap would be same as shareholder equity for a share price of $4.
Looking at TWGP, one could wonder if other respected insurers reserves and accruals of DAC are conservative enough. To give others insight into TWGP, they are a commercial insurance company who had Shareholder Equity of $1B. I think 30% of that or so was in Goodwill. They alerted shareholders that they expected an under reserving charge of $100M via an 8-k about a month ago. Well, they finally let their shareholders know a few days back that the under reserve charge would be about $365M, and a goodwill charge of $215M. Hence, Shareholder Equity is now reduced by an expected $585M. Fitch downgraded them the other day, AM Best yesterday, and like NWLI, they were rated A- by AM Best. You had insider selling at TWGP at much higher prices, yet reason was given as a margin call.
I can't imagine that any analyst or good yahoo poster on TWGP (are there any?) has any answer to the investment dilemma at TWGP. One can clearly see this company as potentially worthless to shareholders, or I guess it is possible that TWGP could recover as a continuing entity, with hopes of a profitable future. The only people with answers, plausibilities, and true insight would only be those close to the bowels of the situation.
Looking at TWGP, one could wonder if NWLI reserves and accruals of DAC are conservative enough. To give others insight into TWGP, they are a commercial insurance company who had Shareholder Equity of $1B. I think 30% of that or so was in Goodwill. They alerted shareholders that they expected an under reserving charge of $100M via an 8-k about a month ago. Well, they finally let their shareholders know a few days back that the under reserve charge would be about $365M, and a goodwill charge of $215M. Hence, Shareholder Equity is now reduced by an expected $585M. Fitch downgraded them the other day, AM Best yesterday, and like NWLI, they were rated A- by AM Best. You had insider selling at TWGP at much higher prices, yet reason was given as a margin call.
We had an excess position of NWLI, which we did trim. NWLI is now our second largest holding, XOM has become our largest holding (That is not a recommendation on XOM or NWLI.) We still have around a 10% portfolio position of NWLI (a touch higher). At this point of time, and that could change quickly and without notice, I plan on holding our position.
Sorry, no link, just Bing it. Fitch Downgrades First Energy & Subsidiaries To BB+ from BBB- The Stable Outlook for Supply takes into consideration plans by FE management
to eventually merge Supply into FES. The companies will remain separate
entities for the near-to medium-term. However, FES and Supply are currently
managed operationally and financially as one entity (together FE Generation).
A rating upgrade at this juncture appears unlikely for FE and its
subsidiaries. A credit rating downgrade could be triggered by: lower than
expected margins and volumes at FES and Supply; continued deterioration at
JCP&L; and or an unexpected adverse operating event at one of FE's nuclear or
large coal-fired generating units.
This is my third attempt in 2 weeks to make a post. I hope this is my last yahoo post ever, and anyone who wants to find me, knows I am at the fool.
Stillwater, good comment, and I will add a touch.
Rising rates would cause annuities to be cancelled. When that occurs, revenues will go down, as annuity revenue, I believe is recorded as earned on the policy, different than that of life insurance. There would also be a write off of DAC's. I do not know the materiality or dollar amount of the write-off.
I had other stuff to post, but can't remember what it was.
I would think that a more normal interest environment is a positive for NWLI in terms of their managing annuities etc. Anyone disagree?
June 12, 2013 (30.40) Two Minute Drill
Two Minute Drill - “I like to be able to give a two-minute monologue that covers the reasons I’m interested in it, what has to happen for the company to succeed, and the pitfalls that stand in its path.” Peter Lynch
Exelon is a large utility services holding company. Exelon generates and delivers energy to over 6.6M customers. Their principal markets are Northern Illinois (including Chicago), southeastern Pennsylvania (including Philadelphia) and central Maryland (including Baltimore).
The generation of energy is resourced by approximately 52% nuclear, 37% fossil and 11% renewable.
If we bring down F2013 earnings to $2.20 per share, using a share price of $30.40, you get a P/E of 13.82. This is using depressed earnings, and not looking towards 2014. Much of this investment is based on a lower than typical P/E, or at least an arguably fair P/E. If earnings rebound to $2.70 in F2014, the P/E at today’s closing price would be 11.26.
Because they have such a high nuclear generation, their costs are relatively fixed, yet the rates they can charge are based on the price of natural gas. Natural gas has been in a depression, and currently is priced at $3.77 per unit. During 2006, the price of natural gas was in excess of $10 per unit, and it went under $3.00 per unit during 2012.
A constant moderate rise in natural gas prices would be operationally positive for Exelon. Of course falling prices would have the opposite affect.
The company carries the inherent risk of any utility, as well as the risks of a potentially negative nuclear situation. The company carries a lot of debt, and if their credit rating went below investment grade, that could be detrimental to the investment and thesis.