How Do You Value And Evaluate Insurance Companies?
Someone asked on LinkedIn: How Do You Value And Evaluate Insurance Companies? My answer is below
First off there is no such thing as determining a perfect value for any company, let alone companies as complex as insurance companies.
Second there are huge differences in valuing life and P&C insurance companies. The main difference comes in the long-range – and possible huge underpricing in long-term life insurance policies – that can have negative effects for years.
But the following links are some of the best things I’ve learned from on how to get a range of values and help you evaluate insurance companies.
A year and a half ago many bloggers. Hedge funds. Private investors. And I banded together to campaign against a horrible proposed buyout offer by Brazil Fast Food Companies (BOBS) controlling shareholders.
At the time I thought BOBS was worth a conservative $20 – $25 per share. So the offer by company insiders of $15.50 was ridiculous.
We made enough noise. And got enough shares together that we were able to vote down the ridiculous low ball offer of $15.50 per share.
Well now there is another offer on the table. And several people have asked my thoughts on this new offer.
I explained in that post that I expected the buyout offer to get approved. And to lose ownership of BOBS. But I didn’t explain why I thought this.
The Queijo Holdings offer of $18.30 per share for BOBS shares not owned by the controlling shareholders is still a low ball offer. In my opinion it is a certainty to get approved.
One reason is because BOBS insiders learned their lesson from the previous failed buyout offer.
A year and a half ago BOBS insiders didn’t presecure any non controlling shareholders votes on the proposed deal. This time they have.
The way I understand it… This vote requires a simple majority of non controlling shareholders to vote yes to approve the deal. And this time BOBS controlling shareholders have already gotten 40% of the non control voters to approve this deal.
In addition, two independent stockholder groups of the Company that approached the Controlling Stockholders, which collectively represent 40.55% of the shares of common stock held by minority stockholders, have agreed with the Controlling Stockholders to support a transaction only if the Board of Directors recommends one at the price set forth in the proposal.
This means that only 9.46% more non controlling shareholders need to vote yes to approve this deal. While I don’t know the results of the last vote. I will bet BOBS got more than 9.5% of non controlling shareholders to vote yes for the transaction to approve it.
The above article also explains the other reasons why I am positive this transaction will get approved.
The article explains that a “special committee” must approve this deal before it can go through. But BOBS and Queijo Holdings are picking the “special committee.” So the special committees incentives are to approve the price. And approve the deal since BOBS and Queijo are paying their fees in this case.
And whoever pays the fees for something usually gets what they want.
The above reasons are why I am positive this deal will go through.
I hope I’m wrong because I don’t want to lose ownership of this company…
But these are the reasons I expect this deal to go ahead.
To gain access to a free 20-page gift that will help you evaluate companies faster. Is something I use every time I research a company. And to make sure you get all future posted content. Go to this link.
Sad To Be Losing Ownership of This Company That Gained 129%; Brazil Fast Food Buyout
Two years ago on this blog I got a tip that I should look at a Brazilian fast food company for a potential investment. A buddy said I should take a look at them because of previous articles I wrote about Jack in the Box and Wendy’s.
He thought I might find this Brazilian company interesting. And a stark contrast to the two other fast food companies I had evaluated at that time. And didn’t think high of.
He was right…
This Brazilian company was growing fast. Had high and growing profits because most of its restaurants were run by franchisees. And because it was lowering its costs. It had signed exclusive agreements with Coca Cola among others. And had a moat. The first – and still only – time I’ve come across a small restaurant/fast food company with a moat.
But best of all it was undervalued by a wide margin.
I found it to be worth conservatively between $16.50 and $22 a share. And when I bought it for the portfolios I manage it was only trading at $8 a share.
From a high of $18.99 to a low near $12 per share. The last two years have been a volatile ride up and down for this company.
The company has continued to grow and improve. And there was an awful low ball taken private offer of $15.50 a share by company insiders that I and other investors in it banded together. And successfully fought against.
BOBS management and Quiejo Holdings have already secured 40% of the non-inside owners of its shares to agree to the deal. Making it a certainty that a majority of “outside” shareholders will approve this transaction.
While I am glad we fought the first time and will be getting an extra $2.80 for each of our shares. And for the 129% gain in 2.5 years for the portfolios I manage. I will be sad to lose ownership of this company.
Not only because this company will continue to do great in the future. But because this time of my value investing education was a turning point for me. The lessons I learned from evaluating this company are a big reason I am where I am today.
BOBS was one of my first true “investments.” And I look forward to finding many more companies like this for those who subscribe to the newsletter I write.
Thanks to Red from the Red Corner Blog for sending wonderful idea to me. And for the lessons I got from evaluating and owning this company.
Excellent Links From When I Was Writing How To Value Invest Part 1
While I was writing How To Value Invest I did not do very much learning about value investing. I did however save every link that I thought might contain some excellent information from those emails dating back to February, and plan to share what I think the very best links were from that time frame over the coming weeks while I am researching companies again.
Hedge Fund Letters – Shareholder letters from a bunch of different funds including Baupost, Fairholme, Berkshire, Fairfax, and many others.
How To Get Into The Value Investors Club by Whopper Investments who recently got accepted into VIC, something I have failed twice at thus far. Hopefully I picked up some pointers from Whopper for my next attempt.
Punchcard Investing Blog – An excellent new blog which concentrates on companies with moats and competitive advantages. I highly recommend going back and reading the entire blog.
Brazil Fast Food Update: After Huge Run Up The Company Is Still Undervaluedis my first new article posted in months and can be viewed over on Seeking Alpha. The article is a Seeking Alpha Pro article but will remain free for everyone to look at for the next few weeks. In the article I revalue BOBS, analyze its float since I was not doing that when I wrote the original article, talk about its continued improvement in profitability and other metrics,and talk about the catalysts that are still in place to help unlock the value of the company. Directly below is the introduction of the updated BOBS article.
I wrote my first article about the Brazil Fast Food Company(BOBS.OB) in December after having them recommended to me by Red from The Red Corner Blog. I have held them since buying into them at that time and after having a great discussion on the current valuation in the comments section of the original BOBS article on my blog I decided to completely revalue BOBS to see if it is under or overvalued now that the company’s share price has gone up from about $8 a share when I first bought to $14.50 per share now.
For the most part BOBS is operationally the same as the above article, except that it has continued to expand its restaurant count and number of franchisees, so please refer to that article if you are interested in hearing about its operations, competitive advantage that I think it has, and to see and compare its valuations, margins and catalysts from then to now. In this article I will be concentrating solely on its updated valuations, NOLs and a few other important factors like ROIC, EV, TEV, working capital, shareholders’ equity, debt, catalysts, a new potential risk, etc. Since I was not doing any kind of in-depth analysis of float I will also add this one thing to the article that wasn’t in the original.