I recommend those investors interested in Central Securities to download and read the closed-end fund's mid-year (June 30, 2014) report to shareholders. It contains the latest transactions by the entity and the most recent valuation of its holdings, particularly its substantial stake in Plymouth Rock Company. The fund also disclosed its recent share repurchases as well as its holdings in cash and equivalents. We continue to find these securities attractive, selling at a substantial discount to NAV.
PartnerRe has been undergoing a major reorganization and rationalization of its operation over the past 18 months and will conclude this initiative by year-end. As of result of these actions, management has stated that it will take a minimum of $70 million pretax out of the expense structure of the company. By our reckoning, this amounts to about $1.00@share of potential increased EPS. It is unclear whether all of these savings will fall to the pretax line, but we believe a significant percentage will be realized in this form. Obviously, continued aggressive share repurchases will only increase the beneficial impact of these savings. We continue to have a conservative year-end price target for PartnerRe equity of $120@share.
What does ACR lose if this deal doesn't close? Will the business that AmTrust and National General wrote via their cut-thru agreements somehow disappear? So someone sues them. Who has the deep pockets to pursue litigation? Would it be a better outcome if ACR negotiated the price down to pennies a share? The only problem is that ACR would have to take on the liabilities, and who knows what they amount to. If I were the Karfunkels, I would be in no hurry to close this transaction. At a minimum, why not wait to see what happens when Tower's debt comes due? This will be a very interesting several weeks.
I expect that PartnerRe will purchase 3-million or more of its shares during the second half of 2014. Those buy-backs will be highly accretive to both book value per share and EPS, given the stock's low valuation and the significant equity embedded in its loss reserves and its investment portfolio. I continue to have a highly conservative $120@share price target for year-end.
It is clear to me from reading TWGP's 10Q that this insurer is insolvent. Moreover, does anyone really believe that the situation isn't worse than those numbers indicate? It remains extremely difficult to understand why any rational entity would purchase this POS. In any event, why should ARC be in any hurry to close this transaction? I would delay at least until we see if Tower can meet its maturing debt obligations. Certainly the inability to do that should relieve ARC from any obligation to move forward. I agree with those board participants who say that the next few weeks should be quite interesting regarding the fate of TWGP.
Progressive equity has been a high-profile underperformer the past several years. Many insurance industry equity analysts have asserted the shares sell at a lofty valuation. Although they have been correct in the recent past, could this view be about to change? Nobody questions the fact that Progressive is one of the best run insurance companies in the US, if not the world, and deserves to sell at a premium p/e and price to book ratios. However, I am observing an acceleration in the underwriter's premium growth rate, which may translate into upside EPS surprises. Moreover, this company generates significant excess cash flow which it can utilize to increase its share repurchase activity as well as engage in other type of capital return to shareholders. I like this stock on recent price weakness.
For the year-end distribution, Central will ask whether you want the funds in cash or paid in shares. As indicated above, I always take the shares and pay the tax obligation with other funds.
If AmTrust and its affiliates have had access to Tower Group's business through their reinsurance cut-through agreement, why should it close on a transaction in which it is taking major and unknown liabilities for a significantly over-stated price? This just makes absolutely no sense to me. I know TWGP shareholders would like this transaction to close. However, if they were in the Karfunkels position, would they complete this transaction? Does anyone really believe this company will have a positive net worth when shareholders vote on this merger? Obviously, it will be very interesting to observe what happens after the August 6th date of the TWGP shareholders' meeting. I'm in the camp that says ACP will be in no hurry to close this transaction.
UBS insurance equity analyst Brian Meredith raised his 2Q14 EPS estimate for PRE this morning, and he now projects that the company will achieve more than $13@share in EPS. This number is well above consensus estimates in the mid-$10@share range. If such a performance is recorded, it will boost the reinsurer's book value per share to well over the $120 level, which is my personal price target for year-end. In any event, I trust that management is continuing to aggressively repurchase its woefully cheap equity.
IMO, there will be no transaction before TWGP's 2Q14 financial results and that these numbers will go a long way toward indicating whether ACP goes forward with its purchase. If TWGP records similar results to those generated in 1Q14, the company will be in a negative net worth position. It is hard to understand why rational buyers would want an entity in such dire financial condition. Moreover, the stated financials might understate the "true" financial condition of the insurer. In any event, with the second-quarter now completed, I don't see how a deal gets done without the numbers reported for this interval.
It will be interesting to observe if Central Securities (CET) management engaged in significant share repurchases in 2Q14. I always favor such actions inasmuch as the stock sells at such a large discount from net asset value (NAV). Obviously, we will learn this information when the company releases its 6-month financial report later this month or early next. Moreover, we will also observe if management elected to further increase its valuation on its sizable Plymouth Rock holding. I expect that the information provided in this disclosure will propel additional upward movement in its share price.
Janney equity research put out a piece this morning which forecasts that PartnerRe's 2Q14 book value per share may be quite close to $120@share. My personal price objective for PRE equity by year-end is $120, so this estimate pay prove to be conservative. In any event, with this continued robust growth in book value, it makes superb sense for management to continue aggressively repurchasing its equity at a significant discount to economic value.
I saw this morning that morning that MS insurance equity analyst Kai Pan has increased his 2Q14 EPS for PartnerRe to $3.09 from $2.50. Obviously, this rise is well above consensus forecasts for this interval. One should expect the shares to respond favorably to this development.
Central Securities should benefit from the efforts of Nelson Peltz to unlock value in Bank of NY equity, since it is one of the fund's top 10 holdings. The stock was up more than 3% today to a 52-week high. Central (CET) recently paid its mid-year dividend of $0.20@share on 6/24.
I couldn't agree more with your sentiment. Charman thinks he has the support of Endurance's shareholders, but I'm not so sure. If he did, why did management lose the recent "Say-on-Pay" vote? I also worry that Charman will stretch the company's financial results during this period to present a more flattering portrait to the investment community. I'm highly suspicious of dramatic improvements in operating performance achieved through significant reserve releases. Like you, I want management to get back to running the business full time and not divert attention to buying a competitor whose management has no interest in being acquired.
PartnerRe has a successful history of successful M&A in the reinsurance industry, having made numerous acquisitions during its 20+ year history. Its most recent purchase, Presidio Re, is proving to be a very successful acquisition. I see no reason why PRE will not continue to be opportunistic in the upcoming consolidation of the worldwide reinsurance sector. IMO, the company is in an excellent strategic and tactical position to take advantage of these secular trends, having an extremely strong balance sheet and a deep and technically strong management team. There is little doubt in my mind that acquired entities will enhance the company's revenue and profit growth going forward.
Do you really think the regulators are going to let ACP strip the assets out of Tower and leave more liabilities for the guarantee funds? ACP isn't suppose to be engaging in an asset purchase. It is suppose to be purchasing control of the holding company with all the "good and bad" that comes along with it. I don't see the regulators permitting anything like a "good bank" "bad bank" structure. The mere fact that Tower would send a letter to ACP requesting they affirm their intention to complete the purchase of Tower indicates to me that there is serious question as to whether this transaction will be completed.
What is the "true" financial state of Tower Group? Does anyone really believe that this is a viable business? Why would anyone purchase a falling knife? As far as Tower's distribution network is concerned, its the product of selling an underpriced product. I doubt there is much, if any, brand loyalty here. It certainly isn't worth looking down the barrel of a gun, IMO.