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Nelson,
I continue to believe that HRTG is the best of the FL insurers to buy. Their management team is great and they continue to grow at a significant rate. With favorable weather down in FL for Q1 and Q2, I would expect them to post $0.70+ in EPS in both quarters. Analysts are forecasting $2.78 for the year, and applying a multiple of 11x - 13x (these are what UVE, UIHC, and FNHC are trading at), you have a target price of $30.50 - $36.00, or a 45% - 70% increase from here. That's just to get them trading on the same basis as the three other perfect comps! I still hold my shares from earlier this year and have been adding here in the low $21's after the outstanding Q4 report.
I also like KINS in the insurance space. They will likely post a weaker quarter here in Q1, but after that I would expect Q2 to come in at $0.30 or so and Q3 and Q4 to come in above that as they continue to cede less premium to their reinsurers. They have a great track record in their personal lines and have been unlucky the past 2 years with rougher than average winters and 3 years ago with hurricane sandy. I hope that they are due for a quiet year or two here... I agree with SKILLZ that KINS should see its price above $10 at some point this year.
Best of luck.
HRTG - Finally breaking out and moving closer to a reasonable valuation, especially in light of the gains seen in other FL insurers (UVE). EPS of $0.66 was great for Q4 and with the addition of more policies I would expect earnings to continue to grow. This is a well managed FL insurer built for the long-term. I continue to hold and think this could trade above $30 by the end of the year, which would be over a double from my initial buy point. Good luck to all...
Great post! I fully agree with your thoughts and, as previously discussed in several posts, feel that your $2+ target is rational from a fair market value perspective. Thank you for sharing.
I hope to be updating the iBox with the latest results this evening. I will also put together the latest valuation multiple sensitivity table tonight.
Another strong and profitable quarter for AYSI. EPS of $.07 on sales of $5.3 million. The Australian dollar fell against the dollar causing the sales decline to appear greater on a USD basis. Strong profitability continues as the operations earned $.05 per share this quarter and currency movements added another $.02. Cash now up to $8.8 million and I would expect this to continue to move higher. Still very cheap at $1.17.
KINS - Not much of a blizzard in NYC...
http://www.slate.com/blogs/the_slatest/2015/01/26/blizzard_2015_latest_updates_on_the_east_coast_snow_storm.html
I wouldn't expect a dramatic impact on KINS results.
KINS - Insiders continue to purchase shares. There was a large share offer at $8.07 that appears to be almost purchased, only 4,000 shares left at the ask. I continue to think KINS in undervalued and will hit $12+ this year. Insurance companies continue to post strong results (Travelers) and the coming increasing interest rate environment will benefit insurers through higher interest income.
KINS - KIK - I tend to agree with SKILLZ and Nelson on KINS and am bullish for 2015. There are two analysts that follow KINS, Sandler O'Neil and Compass Point. Sandler O'Neil is forecasting $1.05 for next year and Compass is at $0.90. With its lower EPS estimate, Compass still has a price target of $10, to a forward target P/E of 11, which seems reasonable to me. I personally think their 2015 estimate of $0.90 is a bit low. Compass was forecasting $0.19 per share for Q3 and the company came in with $0.26. I also like that they will be showing very strong comps y/y starting in Q1 and Q2, which should help share price.
I personally think they will be closer to $1.05 to $1.10 per share for 2015, and with a 11 P/E, my target for next year is $12. The company has historically been able to generate a strong return on equity, and with its new reinsurance contract, they are targeting an ROE of 20%, which would equate to a $1.11 per share 2015.
In terms of my 11 P/E multiple, there is definitely support for higher in the insurance sector. Meadowbrook Insurance Group is another small P&C insurer that was recently purchased by Chinese company Fosun for 16x 2015 P/E. Sure, Meadowbrook was larger and more diversified and it was a control transaction, so I would expect a higher P/E for Meadowbrook, but 11x still seems reasonable given Kingstone's superior growth.
I do agree that it's a bit disconcerting that Infinity Capital continues to sell, but they are an early venture capital investor that invested back in 2006-2007. They also have more of a focus on tech investments. I think if there were more of a pure play, late stage insurance investor, than their selling would be worrying. But given their strategy and focus, I don't think they're in a superior position to management (837,000 shares for the CEO) or other recent large equity investors (Eidelmen Virant Capital - 498,000 shares, Stieven Capital - 311,000 shares, and Wedbush Asset Management - 448,104 shares).
Time will tell...
dIt's a bit late, but below is the table I have put together that shows the valuation multiples of AYSI based on various share prices. To give you a bit of context, below are also the various multiples that AYSI’s competitors currently trade at. These companies have seen significant deterioration in their financial performance, whereas AYSI has been able to maintain its performance.
Bisalloy – 11.9x EV/EBITDA, 0.8x tangible book value, negative earnings of $1.7 million so the P/E is not meaningful
Bradken - being acquired by Bain – 7.9x EV/EBITDA, 2.2x tangible book value, 38.2x P/E
Joy Global – 8.7x EV/EBITDA, 4.8x tangible book value, 14.9x P/E
Austin Engineering – 9.8x EV/EBITDA, 0.8x tangible book value, 64.9x P/E
In the table, I have presented multiple with cash on an un-adjusted basis, and on a cash adjusted basis to reflect the higher than normal working capital level as of September 30, 2014. I’m estimating that they have an extra $2.4 million of cash tied up in working capital than on average over the past 2-3 years. I’m also not including any value for the land and investment in Indonesia, which is upwards of $4-5 million.
I've highlighted in green where I feel AYSI should conservatively be trading given their financial performance, but strong arguments can be made for much higher share prices.
I would appreciate if everyone would share their thoughts on value and where they think AYSI should be trading.
Mining companies have been cutting spending for some time now, which can be seen in the results of providers of equipment and services to those miners. Sales for companies like Joy Global, Catepillar, Bradken, Bisalloy, and I can keep going have been reporting revenues that are 25% - 45% lower than their peak. At the same time, AYSI has been able to keep its revenue relativity stable, which I think speaks to the superiority of their product. If mining companies are going to be spending money on mainting their production and running their operation at the lowest cost, than AYSI's product plays perfectly.
I think the current price more than reflects the negative sentiment in the indusrty. I would argue that even if profits fell by 66%, the current share price would be fair. I don't think profit is going to fall by 66%. The large mining companies AYSI service plan to continue to operate at high levels and will need to spend to keep production going, so I expect demand for AYSI's products to remain relatively strong.
As such, I bought some more this morning in the low $1.20's.
AYSI Valuation - Well, even with the latest quarter results which were fantastic, AYSI's valuation continues to astound me. Alloy is currently trading at a 3.3x P/E excluding cash and 2.0x EBITDA. If you factor in the fact that cash is a bit lower than usual given the higher than usual inventory balance, those multiples decline to a 2.8x P/E and 1.7x EBITDA!
I plan on posting a table later today that shows the valuation multiples at different share prices, to highlight where I think AYSI should be trading and where it would trade if it were valued similar to Bradken and Bisalloy. Needless to say, its multiples of where we are currently trading.
iBox updated with the latest financial results.
I did notice the increase, but I do remember there being a discussion of expanding the space in Australia.
I'll work on updating the iBox with the latest financials over the weekend.
Nat - I think it's important to know that Q4 earnings were also impacted by a ~260k impairment charge on their PP&E. So technically, earnings should be adjusted upwards by $0.01 after tax. So earnings were closer to $0.065 per share ex currency and impairment. So an excellent quarter all around. Inventory levels are still a little higher than usual, but nothing to really worry about as these will likely move down over the year and build cash even more as they have in the past. I also like that sales were more diversified this year with a smaller % going to its largest customer.
I agree that it should be removed. I haven't had the chance to calculate the difference as I'm on a plane... Even with removing that amount, it was a solid quarter. I continue to hold for higher prices.
AYSI - The report is out and it looks good! Sales over $7 million and EPS over $0.09! Cash balance up over $7 million again. Great quarter means that the stock should see a move back up.
The report is out and it looks good! Sales over $7 million and EPS over $0.09! Cash balance up over $7 million again. Great results mean we should see a move back up.
KINS - I'm with you on this one. It was slowly moving up to my top positions. The comp for next quarter will be fantastic and with their move away from auto, I think they'll regularly be posting earnings of $0.30 per quarter, which should push fair value above $12, or a 50% gain from here.
SSKILLZ - Adding any KINS here in the low $8's? I've been building up my position on this little move lower.
It is a much more difficult question to answer and unfortunately I do not know how much of their business is related to iron ore mining vs. other commodities vs. non-mining uses. I wish I could be more help with this question, but I haven't run into anything over the years that would help shed some light on this topic.
Yes, I am working off that assumption that BHP is their largest customer, given their long-term contract and relationship.
KINS - Great quarter by KINS! Adding here in the $8.50's. I think its a safe bet that this will be trading in double digits within the next 3-4 months.
If you google the article you'll see that it showed up in a mining journal article as well. I've been buying shares of AYSI in the $1.05 - $1.15 range here lately as news from BHP regarding their expansion will continue to support Alloy's results. They continue to outperform their public competitors and continue to trade at a significant discount to their multiples and what I believe to be fair value. Earnings for the full year should be out in late November to mid-December. I'm expecting a bounce back in terms of EPS to $0.04 - $0.06 with cash building back up to over $7.5 million.
SSKILLZ - HRTG - Congrats on the trade. I will continue to hold through earnings as the lack of a serious storm this summer will mean strong profits for HRTG and the other FL insurers. UIHC, FNHC, and UVE all report earnings this week before HRTG and will give investors a good idea of what to expect from HRTG. I expect solid results for the quarter.
HRTG has had a nice run over the past 2 days, but so have the other FL insurers, which means that the valuation gap between multiples of HRTG and the other FL insurers remains. Until I see that gap shrink and disappear, I will continue to hold HRTG.
Good luck to all...
Received a nice email this morning with what looks like a press release from Alloy. It would be nice if it were an actual pr.
Alloy Steel International & Arcoplate have partnered with MCS, Mechanical & Ceramic Solutions, one of the top US Distributors for solving wear issues in various industries throughout America.
MCS fabricates new parts, rebuilds customer-supplied parts, and provides field installation services in their large capacity fabrication facilities in Pennsylvania.
Industries such as coal fire powered generation, coal mining, cement production, grain processing, steel production sand and gravel production and countless other mining and mineral processing operations have come to count on MCS to evaluate, design and improve new and existing products with quality material for optimal operation and wear life.
Arcoplate Wear Plate is composed of an alloy overlay that is strongly fused to a carbon steel base. Arcoplate's overlay layer is made up of an abundance of strong carbides embedded in a tough matrix. With this layer being created using a single pass computerized process, a stronger metallurgical bond is formed, eliminating some of the major drawbacks associated with other weld overlay products. Arcoplate can be used in most applications. Arcoplate works well in applications where abrasion, impact, gouging, erosion, temperature extremes and hang-up or carry-back are experienced. Arcoplate is proven to outlast traditional QT
wear liner products by as much as six times. Arcoplate delivers cost and time saving benefits while minimizing downtime and energy costs.
"The addition of Arcoplate will be a great compliment to our other offerings because it's unique characteristics and properties diversify our application and design opportunities, which can also expand our customer base."
Said Kevin Bernard Sales Manager for MCS in
Carnegie, PA.
About MCS-Mechanical & Ceramic Solutions Inc. is an innovative company formed by highly experienced professionals dedicated to solving abrasion resistance problems.
Website- MCS-pa.com
About Alloy Steel-Alloy Steel International of Australia, has been manufacturing Arcoplate wear plate since 1991. Created by the late Gene Kostecki, Arcoplate is a unique wear plate solution with proven performance.
Alloysteel.net
About Arcoplate- Arcoplate is a wear resistant fused alloy steel plate manufactured by Alloy Steel International. It is a smooth dense, chromium carbide rich overlay plate manufactured by a patented production process to maximize abrasion resistance and reduce material hang-up under the most challenging operating conditions.
Arcoplate.com
HRTG - Nelson, here are a few points from my diligence to help alleviate some of your concern around HRTG. I agree that its a great short term trade now that the hurricane season is essentially over, but I feel that HRTG was built for the long-term given the way they've structured their claims handling and risk management. I feel with their reinsurance program, they would weather a catastrophic weather situation better than some of their peers...
The Sunshine acquisition helped HRTG diversify its concentration away from Citizens takeouts. The amount of its policies that were takeouts decreased to 69% in 2Q14 from 89% in 1Q14. In addition to adding policies, HRTG moved Sunshine’s policy processing technology systems onto its own legacy systems as they were more efficient.
HRTG is also moving into new lines of business including commercial residential insurance and has a team of 12 individuals, which is the largest in the state and is organically writing business. HRTG is also looking to expand into manufactured housing and general liability in 2014/2015. Similar to the other insurers, they will be looking to start writing policies outside of just Florida. These are all organic growth initiatives that will help diversify the business away from Citizens and Sunshine. Keep in mind, the company only started writing policies in 2012, so while I agree the majority of current policies came from takeouts, organic growth will become more of a focus as their agent network expands and they focus on these new opportunities.
The FY 15 estimates are being forecast the same way UVE's, UIHC's, FNHC's and HCI's are being forecast as the same analysts cover each of the companies. It's a bottoms up approach given each company's book of policies and their reinsurance programs. I view the validity of HRTG's analyst forecasts no differently than the forecasts for UVE, UIHC, FNHC, or HCI. The forward P/E's (Price / 2015 EPS) as of today's close are as follows:
FNHC: 14.4x ($32.47 / $2.25 EPS)
UVE: 7.8x ($14.50 / $1.86 EPS)
UIHC: 10.4x ($17.60 / $1.69 EPS)
HCI: 9.0x ($49.42 / $5.47 EPS)
HRTG: 6.0x ($15.64 / $2.62 EPS)
In terms of management team, they have significant experience in the market:
President Richard Widdicombe was formerly President of Federated National Insurance Company (FNHC) as well as two other Florida carriers.
COO Kent Linder held a similar position at Federated National
Chief Underwriter Mel Russell was previously President of United Property & Casualty (UIHC).
CFO Stephen Rohde has 39 years of industry experience and was CFO of People’s Trust Insurance.
Chairman and CEO Bruce Lucas has a strong background in distressed assets and was a founder of Heritage.
HRTG - Appears to be on the verge of breaking out today. The other FL insurers have been consistently moving up the past 2 weeks, which has exacerbated the valuation discrepancy between HRTG and UVE, FNHC, UIHC, and HCI.
HRTG trades at a significant discount to the other FL insurance players on a forward P/E basis. HRTG currently trades at about a 5.5x P/E based on analyst estimates, which the other FL insurance companies (UVE, FNHC, UIHC, HCI) trade at an average 10x forward P/E. I believe HRTG's management team is superior to the teams in place at UVE, FNHC, UIHC, and HCI and their balance sheet is stronger. I also believe they have a superior reinsurance profile. All these factors would typically point to a premium valuation versus its peers. I think HRTG will outperform its peers over the next year as its result bear out these advantages.
HRTG is the only FL insurer of the group to to have an in-house claims process, providing cost savings to HRTG and improving customer experience. It is also advantageous for customers as they just have to call HRTG and don't have to find a contractor. Customers also are not exposed to contractors doing excess, uncovered work.
Technically, HRTG is bumping up against some resistance in the $15.25 level. It has built quite the base over the past 4.5 months in the $14-$15 range. I think its just a matter of time before it breaks that resistance and moves higher into clear skies. A breakout above $15.30 could send this to $20 or more
Good luck to all...
HRTG - Appears to be on the verge of breaking out today. The other FL insurers have been consistently moving up the past 2 weeks, which has exacerbated the valuation discrepancy between HRTG and UVE, FNHC, UIHC, and HCI. As I've continued to research HRTG, I found that they are the only FL insurer of the group to to have an in-house claims process, providing cost savings to HRTG and improving customer experience. It is also advantageous for customers as they just have to call HRTG and don't have to find a contractor. Customers also are not exposed to contractors doing excess, uncovered work. A break above $15.30 should take this over $20 in the next several months.
Good luck to all...
HRTG - I agree. HRTG continues to add policies from organic activities and Citizens takeouts. They continue to trade at a significant discount to the other FL insurance players on a forward P/E basis. HRTG currently trades at about a 5.5x P/E based on analyst estimates, which the other FL insurance companies (UVE, FNHC, UIHC, HCI) trade at an average 9.8x forward P/E. I believe HRTG's management team is superior to the teams in place at UVE, FNHC, UIHC, and HCI and their balance sheet is stronger. I also believe they have a superior reinsurance profile. All these factors would typically point to a premium valuation versus its peers. I think HRTG will outperform its peers over the next year as its result bear out these advantages.
Technically, HRTG is bumping up against some resistance in the $15.25 level. It has built quite the base over the past 4.5 months in the $14-$15 range. I think its just a matter of time before it breaks that resistance and moves higher into clear skies. A breakout above $15.25 could send this to $20 or more.
If you value HRTG similar to the other FL insurance companies, fair value is closer to $25 - $30 and I expect HRTG to get there over the next year.
Hweb - KINS - You can now buy KINS at an 8% discount to the $8.15 price that insiders were buying at. I took the opportunity yesterday to add to my position. Quarterly numbers will be out November 14.
APT - anyone tempted to short here at $6.70? Ameritrade has shares available...
HRTG - HRTG was approved to assume 20,000 policies from Citizens last week. HCI rallied over 15% after they released news of their assumption of 69,000 policies from Citizens. It would be interesting to see if there is a rally upon announcement from HRTG on their assumption of 20,000 policies.
Here is an article with details:
The Florida Office of Insurance Regulation said Oct. 1 that it approved the removal of up to 211,080 personal residential policies and 4,408 commercial residential and nonresidential policies from Citizens Property Insurance Corp.
American Colonial Insurance Co. was approved to remove up to 22,050 personal residential policies from the personal lines account. Cypress Property & Casualty Insurance Co. can remove up to 23,000 personal residential policies — 20,337 from the personal lines account and 2,663 from the coastal account. Heritage Property & Casualty Insurance Co. was approved to remove up to 20,000 personal residential policies consisting of 17,000 from the personal lines account and 3,000 from the coastal account and up to 600 commercial residential policies from the commercial lines account and coastal account.
Homeowners Choice Property & Casualty Insurance Co. Inc. is allowed to remove up to 69,000 personal residential policies, consisting of 24,150 from the personal lines account and 44,850 from the coastal account. Mount Beacon Insurance Co. is authorized to remove up to 29,515 personal residential policies, with 19,515 from the personal lines account and 10,000 from the coastal account.
Olympus Insurance Co. can remove up to 10,000 personal residential policies, with 7,793 from the personal lines account and 2,207 from the coastal account, and Safepoint Insurance Co. can remove up to 18,000 personal residential policies — 15,000 from personal lines and 3,000 from coastal.
The regulator also signed off on United Property & Casualty Insurance Co. removing up to 2,027 commercial residential policies, with 1,824 commercial lines and 203 coastal, and Weston Insurance Co. removing up to 19,515 personal residential policies in the coastal account and up to 1,781 commercial residential and nonresidential policies in the coastal account.
The take-out periods are Dec. 9 for commercial residential and Dec. 16 for personal residential.
AMOT - KIK and hweb, are you guys still in AMOT? I'm looking to start a position here at $13 given the fall from recent highs over $17. It looks like Q3 and Q4 should show significant gains from prior years for both revenue and net income. It also appears as though the backlog is very strong at over $80 million with orders above $60 million per quarter. They have also already paid down $5 million of the $80+ million that was taken on for the Globe acquisition. I expect the company to continue to pay down debt with cash flows with the eventual refinance of the sub debt in 2016, replacing it with cheaper senior debt. Stock seems cheap here at $13...
HRTG - Just found this blurb while doing more DD on Heritage. Looks like they are in line to take on some additional policies from Citizens in October...
Heritage P&C and Tower Hill Preferred join Safepoint Insurance Co. and Weston Insurance Co. as the carriers approved by the Office of Insurance Regulation to take out up to 91,499 Citizens multiperil personal residential policies and 5,732 commercial lines polices in October.
HRTG - Nelson, you are correct that FNHC is growing fast organically. I believe HRTG is working on expanding its agent network, which should help boost organic growth going forward. They are also going to continue to assume policies from Citizens. I like that they've been active in their reinsurance program and utilizing catastrophe bonds at favorable rates. They also bought thee largest vendor in the Contractors’ Alliance network, which they believe will allow them to expand their in-house mitigation and restoration services. They also intend to license their Contractors’ Alliance employees as adjusters, which they believe will reduce their loss adjustment expenses and shorten the length of time required to resolve claims. The management team is very strong and own a good portion of the equity.
I've purchase some more today as the other Florida insurance companies are rallying (FNHC, UVE, UIHC, HCI).
HRTG - Well given that they hold investment assets and earn investment income, I would expect increasing interest rates to positively impact HRTG as investment income would increase.
Analysts are projecting EPS of $2.60 in 2015, so trading at 5.4x forward earnings, which is a discount to FNHC, UIHC, UVE, and HCI. As SSKILLZ mentioned, HRTG also has superior growth than the other Florida insurers.
HRTG - SSKILLZ - Are you adding to your HRTG position here in the low $14 range. I've initiated a position closer to $14.50 over the last several weeks. What do you think they can produce in terms of EPS in Q3?
Thanks
Re - PEIX - Are you still accumulating with this decline? Ethanol futures fell again today and are now in the low $1.70 range. My put strategy was blown-up with the drop to under $17. Thankfully, it was a small bet. I'm looking to buy down here and added a bit around $17.25 this afternoon.
Great find! Looks like they also have a brochure for the product put together and posted on their LinkedIn page.
https://www.linkedin.com/profile/view?id=352770015&authType=NAME_SEARCH&authToken=V1V1&locale=en_US&trk=tyah2&trkInfo=tarId%3A1410839597922%2Ctas%3Aarcoplate%2Cidx%3A1-1-1
Apparently "ArcoCeramics" and "ARMATUFF" were trademarked back in December 2013.
http://www.ipaustralia.com.au/applicant/alloy-steel-australia-int-pty-ltd/trademarks/1564714/
Looks like they have also trademarked something called "Atomic Nanotechnology"
http://www.ipaustralia.com.au/applicant/alloy-steel-australia-int-pty-ltd/trademarks/
Glad to see that they're investing in new products and technologies...
bbotcs - Thanks for the links and I appreciate the posts. I agree that the ethanol industry is one with lots of uncertainty beyond 2014. These positions are short-term in nature, and with the September $19 put options expiring in a week, I feel quite comfortable with the share price rebounding back to over $21 this afternoon. Similarly, the October $17.5 puts are also short-term and deep in the money. I'm making a bet that these issues (2015 corn crop, brazilian ethanol, etc.) will not impact the share price significantly over the next week and month as more focus will be on the short-term 2014 results.