value and opportunity

End of last year, I looked at April SA, the French Insurance broker (part 1 and part 2).

In March, April pre released 2011 numbers which were quite dissapointing.

EPS per share in 2011 were only 1.37 EUR per share, a drop of -30% vs. the 1.97 EUR in 2010. They also released a regulatory required detailed report in French here.

The problem is that one cannot really understand where the drop in profit comes from.

Sales were more or less constant, however personel expenses increased by almost 10%. Also a 6 mn profit in non op income turned into a -4 mn loss in 2011.

Although claims paymants and therefore technicla results from insurance have increased significantly, lower interest rates increased general costs and an increase in commissions paid more than off set this positive developement.

Deeply hidden in the document (page 145) one can find that also brokerage commission income only stayed flat. Based on what the company communicated, I had assumed that they wanted to increase this part and reduce insurance premium but that didn’t seem to have happened.

On the plus side one can see that free cashflow on the non regulated holding level recovered nicely and amounted to around 65 mn EUR before acquisitions. Also free cash on holding level increased by 40 mn EUR to 80 mn EUR.

Summary:
Despite good cash flow on holding level, the underlying business especially the flat brokerage commissions are disappointing and not coherent with the communicated startegy change. At current prices (EUR 14,60 per share) and based on the underlying business developement, the risk/return profiel is not attractive enough.