Topdanmark – The Danish Cannibal
Topdanmark, a local Danish Insurance company has been on my extended “to do” list for a long time for 2 reasons: It is the second most profitable European insurance company after Admiral (based on ROE) and as Charlie Munger would call it a “true Cannibal”.
Those are some selected numbers from Topdanmark over the last 18 years:
Hastings Plc, a UK-based direct insurance company was IPOed in 2015 at 1,70 GBP per share (IPO prospectus). To call Hastings a “Mini Admiral” is actually very close to the truth.
The company was founded as an underwriting Agency in 1996 by an American called David Gundlach who then sold the company 10 years later. Via a couple of more transformations (MBO etc.) Hastings then was finally brought to the stock exchange. Interestingly, according to some sources, Gundlach had worked at Admiral before so it is no surprise that Hastings looks pretty much like a 1:1 copy Admiral:
They only do direct business, reinsure significant amounts of their premiums and make their money mostly with anciliariy products and fees instead of investment returns like “classical” insurance companies. They only exception is that they don’t run a price comparison website (PCW) but they sell almost all policies via PCWs. Like Admiral, they have branched out into home insurance from
Hastings currently has a market cap of ~1.5 bn GBP and trades at an estimated 17,6 times 2016 earnings.
The Company / Spin-off
Gocompare.com (GoCo) has been spun-off from parent Esure in the beginning of November, a week before the US elections and only a few days before Italgas SpA. As a “parting gift”, Esure took out a special dividend of about 75 mn GBP financed by some net cash and a 70 mn GBP loan before spinning the company off-
In my understanding, the major reason for the spin-off was that Esure, the listed UK online direct insurer was short in solvency capital and that this transaction improved the solvency substantially.
Every Esure investor got one GoCo share for an Esure share. Interestingly, Toscafund, the second largest shareholder only holds 14% in Goco compared to 16,7 for Esure, so they seem to have sold some shares.
Some quick updates on preliminary numbers form 3 of my financial stocks:
Admiral released “preliminary annual” numbers yesterday. EPS declined slightly which was not a big surprise. My take aways at a first glance:
– UK car still tough, UK comparison some issues due to competition, however cycle might turn in 2015
– slowing growth in Italy
+ Italy at break even, break even in Spain expected for 2015
+ US growing strongly
+ Intenational comparison sites profitable
The CEO letter is again a must-read for anyone who is interested in Admiral and/or insurance. These guys are really different.
Kas Bank came out already a few days ago with a press release on preliminary 2014 numbers. EPS almost doubled to 1,65 EUR due to the already mentioned one time effect. “Normal” earnings would have been around 0,74 EUR per share.
On the negative side, KAS Bank’s equity has been siginficantly reduced by an increase in the pension liability due to lower discount rates. Additionally they announced that they will expense 5 mn or so p.a. of the one-time gain as “investments”. Top line income acually fell but they were able to cut costs quicker. Overall, if low or negative rates will remain for a lnger time, the upside potential of KAS Bank now seems to be limited.
Finally, NN Group came out with their 2014 results already 4 weeks ago. As with any life insurance company, they are quite difficult to interpret. What I found quite intereting is the fact that they said that their Solvency II ratio under the Standard model is 200%. Normally, most internal models show much higher solvency ratios than the standard model. In my opinion. NN Group remains the best (and only !!!) European Life insurance company to invest in despite the overall extremely difficult environment.
In any case, I will need to analyse all cases in more detail once the annual reports come out, especially with regard to KAS Bank and the pension issue.