Short cuts: Lloyd’s Banking (Sold), Admiral ( Add) & Silver Chef (Add)

Lloyd’s Banking

Some readers might have noticed that I sold my Lloyd’s banking position (with a loss of -16% in EUR7 -8,4% in GBP) in order to partially fund the new Record Plc position.

So why did I sell Lloyd’s ? For this it makes sense to go back to the original write up in April 2015. At the core, I liked the business and the bank as such and thought that government selling and election uncertainty provided an attractive entry price:

Anyway, to me Lloyd’s banking Group looks like an interesting special situation at this time. The share overhang and selling should clear at some time, profits will most likely increase. Over 3-4 years I look for an upside of around 50% plus dividends or ~15% p.a. if my assumptions turn out to be correct.

Now several things happened which back then I considered as “tail risk”:

  • Brexit
  • PPI fines continued, GAAP earnings increased slower than I thought
  • Interest rates in the UK declined significantly

So some very important assumption of my business case turned out to be wrong. One could argue that I should maybe wait until the end of my planned period to see if the case works out. On the other hand, if my assumptions were so wrong, I think it is better to close out the position unless I think the situation reverses quickly.

Especially the last point is an issue which makes the UK banking sector less interesting. When I wrote the post, 10 year UK swap rates were at around 1,9% vs. 0,6% in Europe. Now we are at 1,1% vs. 0,8%. In my opinion, low interest rates makes earning money more difficult for banks in the UK  and the business as such has become less attractive. One could make the argument that I should have seen that before but for me the outcome as it is now was not so clear.


In the original Admiral post I mentioned that I have increased my Admiral position from around 3,6% to 6%. Why ?

Personally I think the 6M numbers were very good despite the negative share price reaction.

A few highlights from my side

  • despite strong growth especially in international insurance and paying a nice dividend, the Solvency II ratio improved. This proves in my opinion that their business model scales very well
  • Growth in the European business is exceptionally good (+50% in France, +25% in Italy and Spain).
  • expansion in the US slowed (+17%) but underwriting results improved significantly
  • there is an interesting slide on page 51 with regard to total market potential. Especially in France and Italy, the share of direct insurance is tiny. Which means there is a looooong potential runway for growth in those markets

Overall the strong growth in international insurance and household insurance creates an interesting effect: Overall margins go down because those businesses are not yet break even. But similar to other “subscription” models, the cost for new customers will fall  in a “steady state” and also costs will scale down going forward.

Admiral at the moment doesn’t look cheap. At an estimated 1,1 GBP earnings for the current year, they trade at 17,5 times earning. However if one would assume for instance that all non-UK car insurance subsidiaries would earn 90% combined ratio ex the cost to gain new customers, this would add 0,2 GBP earnings per share or translate into a P/E of ~15. In my opinion this is quite cheap for a top quality company with a potentially long runway of growth. I don’t have that many better ideas at the moment.

Silver Chef

Silver Chef released FY 2016/2017 numbers a few days ago. At first glance, the numbers didn’t look that attractive with EPS shrinking by almost -20%. According to Bloomberg, this was -11% below “consensus estimate” and the share price dropped from around 8,50 AUD to around 7,30 AUD.

“Under the hood”, numbers for the traditional hospitality segment still look good. Profitability in hospitality has decreased a little vs. 2016 but in my opinion is a function of the strong organic growth in New Zeeland and Canada.

GoGetta obviously doesn’t look as nice. In the annual report on page 39 one can see that impairments in the Gogetta segment clearly were the biggest factor explaining the drop in overall profits. On the other hand, looking on page 8 of the presentation it looks like that the problems at GoGetta seem to be back under control. As GoGetta contracts mature relatively quickly (23 months), the bad deals should disappear relatively soon and new business hopefully should look better.

What I found interesting is that they announced quite ambitious profit targets for next year:

The Company expects full year after tax earnings for FY18 in the range of $24 million to $26 million.

In EPS this translates into a range from 0,64 to 0,69 AUD per share or a P/E somewhere between 10-11. For me this looks (too) cheap. Therefore I increase my position from currently 3,5% to ~5% of the portfolio at around 7,30 AUD/share.




  • Admiral currently seems somewhat overpriced for the insurance sector, with P/E of 18…. However it’s in between a tech stock and a traditional insurer. Which explains the higher P/E… I am considering selling, though don’t know where to put the proceeds then…

    • You can get high quality in the insurance industry at MunichRe. Their recent results were good (great when compared to its immediate competitor SwissRe). In football terms, for 2018, MunichRe 5 – SwissRe 1.

    • If you’re only criteria is relative PE than you are right. If you factor in quality of business, “moat” and growth opportunities than the situation looks very different. Why for instance does Admiral earn around 30-50% ROE when everyone else is struggling to do double digit ROEs ?

      Admiral for me is a very long term position, despite Brexit etc.

      To be jonest, I would not compare Admiral with MunichRe as the businesses are very different. The only similar high quality insurance company which is listed in my opinion is US based Progressive.

  • You have Admiral !!! OOOOHHH !!!

    Did you ever consider Protector?
    Like Admiral, they want intend to be a game changer, by establishing low-cost operations and having a lean value-chain.
    Low costs solutions supported by digital-operations seems to me the way to go for many insurance LoB’s. (or if you will the Nash equilibrium point)… and seems Admiral goes the same way.

    Yet, my view is that Protector has an additional advantage: operating and being based in countries (Nordics) whose economic perspectives are just better than that of Admiral’s home & operational base (UK, FR, IT, ES).


  • Would be interested in your opinion on Silver Chef’s decision to exit GoGetta. I am not sure whether this is actually good or bad for the company, and whether it could be wise to not sell. Thanks!

  • For the record: I sold the additional Silver Chef shares that I bought 2 weeks again. Why ? Well, I missed one specific issue when I looked at the numbers: Overdue receivables increased significantly, but provisoning against defaults did not increase in the same amount. Management seems to have explanations for this, but I am not 100% convinced.

    I am still not giving up on Silver Chef, but my position increase seems to have been premature and I decided to reverse it (at a loss).

  • Hi mmi, I know this is not your typical area of investment. But the uranium sector looks really cheap right now. People seem to think the sector is going to die because of the power plant closures in the western world. There are many plants currently built in Asia however. There are about 40 noteworthy companies left in the mining sector – from over 400, 10 years ago. Most of them do not make profit at the moment as production cost is higher than the market rate. Not much investment therefore. The market is special, as the cost of the fuel is very low compared to Capex to build a plant and contracts are mostly long term. There is also supply from secondary sources. Looks interesting to me. What do you think?

    • Agree with you. Take a look at Nexgen Energy:
      They are developing the largest uranium source in the world and have “institutional” buying.
      Of course these types of investments are rather speculative

      • Mining industry seems complex & dependent on many factors. The main factor for Uranium producers probably is Uranium prices which are at the lowest levels in last 10Y. NextGen’s USP is the demand of clean energy, particularly in Asia. I may agree, however, the same claim is hold by NaturalGas producers. NatGas production increased heavily and prices dropped (they are also among the lowests in last years :-s! ).
        u3o8 Price assumptions by NextGen are 50 usd/lb, currently they are at 19. These facts are sufficient for me to stay away … though it may be a good speculative/diversification bet… ( still a bet!)

        • There are some arguments that uranium will get more expensive. But at the very least NextGen should be able to produce cheaply and make money no matter what, so I guess share holders will profit from just the successful development of their source.
          But agreed: this is very much speculation.

        • Given the cyclicality and the stage where it is, I think an uranium bet would be less speculative than many “investments” I see at present. Disruption as in the oil industry I do not see at the horizon at the moment. Renewables and energy storage are not advanced enough to be a threat in the medium term. Therefore it is the only energy source that’s reliably producing energy around the clock without co2 emissions. A company I would invest in should have enough resources to stay in business for at least the next 2-3 years and be considered a reliable partner for utilities to win long term contracts. Haven’t decided yet but will pull the trigger soon.

    • hmm, nope. Mining stocks is too far out of my circle of competence.

    • @Seb
      Well, I would rather have CO2 than nuclear waste. Don’t you think the latter is more dangerous?
      But you are certainly right, that uranium is in a cyclical low thus presenting this opportunity.

      • I prefer locally limited exposure to nuclear waste which is usually stored underground rather than dying oceans and natural catastrophes. Cost for storing is not cheap though, that’s correct.

        • Actually there is no final storage place on the planet so far…that’s my problem.
          And I am not sure that it is CO2 that causes dying oceans and natural catastrophes. Our climate is so complex that nobody understands it fully. Not to mention that the average temperature is stagnating in the last years, not rising.
          Make no mistake, I’m all for reducing our usage of natural ressources like coal and gas. But maybe to replace it with sth really sustainable, that is renewables. After all nuclear waste lasts for hundreds and thousands of years. And look at Asse…what a desaster.

        • There is no doubt about the warming! Renewables are great there is no question. But they have limitations where nuclear can fill the gap. Asse is a very political issue. So not sure how bad it really is.

  • What do you guys think of Allianz? I have a “legacy” position from times when I did not understand what I do and bought it for the dividend yield. Now I am not sure what to do with it.

    • I also have it. For me is a nice robust company and would sell it at 190. I also had AXA and wisely sold it just after last French elections. …Would increase positions in both if there is a price opportunity (eg. a bit of turmoil in spain next month?).

      • Honestly I don’t expect much of a setback from spain. Especially not for Allianz.
        They also seem to profit from rising rates, at least in the medium term.
        By the way there was a recent WiWo article about Allianz and their R&D center in India. They basically disrupt their own business there, which made me more comfortable holding the stock. Maybe it appeares at the next days. Otherwise I might be able to share it somehow for the interested Allianz fans.

  • Thanks for another great article.

    Investing in UK businesses these days cannot be done without having a stance on the implication of Brexit for the UK £. My personal view is that the current exchange rate is the average of two highly binary options – Brexit in name only (i.e. UK joins EEA like Norway) or a Hard Brexit (which carries a good chance there is sizeable trade disruption with who knows how bad an effect on GDP). For this reason I’ve personally reduced my UK exposure to cash in my current account (I’m UK based) – yes, I’m that paranoid!

    If you’re a Euro based investor, these binary options (whichever one materialises) can easily have a 20-40% impact on your investment in the next 2-3 years. So I question whether these options are really in line with your risk profile – or indeed with the value investing philosophy…. And if you can’t find other ideas, can I suggest Actia (Paris), NaturHouse (Barcelona) and Corem Property (Stockholm)? (disclosure: I bought Corem recently).

    In any case, like others I really enjoy the intellectual honesty of your blog. Keep it up!

    • I would not touch NaturHouse in years ! Owner / top manager is a lame hooligan.

      • Well, I agree it’s not the most ethical of businesses, and the owner does look like a shark. But on the other hand this is a textbook Buffett business – incredible returns on equity with likely plenty of opportunity to deploy capital (small footprint in all the territories they have a foothold in) which delivers similar returns – all of this indicates a substantial moat. And compared to the shareholder earnings, it’s definitely reasonably priced, if not cheap.

  • For the Admiral story, I see also other opportunities potentially in AEGON. Their perspectives for growth may not be terrific, but they have a AA(-) S&P rating, a P/E of ~6 and a PB ratio ~ 0.4, and a juicy dividend of ~5.5% …It reminds of ASR Nederland, 18 months ago (since then they almost doubled), while NN Group also grew nicely (+25% in 12mo).

  • Vielen Dank für dein sehr interessantes und informatives Update zu Admiral!
    Ich schaue mir den Wert noch einmal näher an, denke aber, dass ich in den kommenden Wochen ebenfalls einsteige.

    Aber noch ein Kommentar zum Timing deiner Aufstockung bzw. meines geplanten Einstiegs: Laut Halbjahresbericht ist am 7. September Ex-Dividend-date, am 8. September Record date (Das Timing erstehe ich nicht, warum Dividendenabschlag vor Dividendenstichtag???).
    In diesem Jahr fiel mir bei Aktien mit hoher Dividendenrendite mehrfach zweierlei auf:
    – Der Kursabschlag hat den Dividendenabschlag deutlich übertroffen (Mein Versuch der Rationalisierung: Dividendenjäger mit Rechenschwierigkeiten haben vor der Dividende gekauft und nach der Dividende verkauft)
    – In den Tagen und Wochen nach dem Dividendenabschlag war der Chart angeknackst, der Kursverlauf der Aktie hinkte hinter dem vergleichbarer Aktien und Indizes hinterher. (Mein Versuch der Rationalisierung: Sinkende Kurse schrecken Käufer ab und motivieren Verkäufer, auch wenn der Kursrutsch bilanzneutral durch den Dividendenabschlag verursacht wurde.)
    Ich persönlich will daher bis Mitte / Ende September abwarten.

    Mein spielerischer Vorschlag: Lass uns einen passenden Vergleichsindex (FTSE 250?) oder passende Vergleichswerte mit ähnlich angeschlagenen Charts (Hat jemand einen Vorschlag?) heraussuchen und im Vergleich sehen, ob sich auch hier ein kurzfristiger “Dividendenschaden” feststellen lässt.
    Als Testlauf für eine minimale Timingoptimierung: Sollte man Verkäufe lieber vor einem Dividendenstichtag oder Käufen lieber nach Dividendenstichtag durchführen oder ist das Mumpitz?
    Sorry für meinen Sprung ins Deutsche, aber ich bin gerade etwas erschöpft für längere Texte in Englisch, Deutsch ist immer noch einfacher.

  • Is this movement counting as a trade or three trades? is still the one trade per month policy still realistic?

  • What I like from your blog is it is transparent. I respect (a lot!) people that besides their successes also openly acknowledge their “less successful accomplishments”. Honest & transparent people are difficult to cross nowadays, particulatly in the financial world… You seem to be one of them. 🙂

    • Not only that. This is done like a real portfolio, with all the thought and consideration that has to go into it. Everybody can post a good idea. Almost nobody takes such a rasonable long term view and incorporates it into the allocation decisions on a portfolio level.

      Thanks so much MMI!

  • around 7%. Wholefoods got settled this week as well.

  • What is your cash position after these transactions?

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