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Tuesday, September 27, 2011 8:21:51 PM
Can I ask a question, how do you value PNX?
Answer:
To keep it simple, I disagree with you that the run-off value of the stock is zero. Even if it were, it would take so long to run-off the book that at some point on a short squeeze or some sort of run-up of the stock, I would be able to exit at a profit. I have been able to average into the stock when it heads toward $2 and averaging out as it gets to about $2.70. Always keeping some.
They aren't selling any insurance so what does it matter what the financials are. What good is it predicting how much RBC or earnings will be next quarter?
Answer: They arent writing any new business but they have very high persistency on the "in-force" business so they still have a strong revenue stream. They are managing expenses and not incurring much in the way of sales costs because they are aware that they cant sell any business. Predicting the RBC is a good thing because maybe they will catch an upgrade which would could move the stock up. It also is a better way to value the stock. If they get their RBC up to 350 that should be more that enough to catch an upgrade.
How will your investment earn any money if this company is in runoff? The only way to recuperate is to have this thing sold. But that isn't happening. Sales will never pick up, sure they have annuity sales of 200 million, but that amounts to about 1 million of profit.
Lets change the term from investing to wagering. I have been able to make money wagering on the short term movements in this stock without it going anywhere by trading the fact it is more volatile than the stock market. I do think the run-off value of the company is greater than zero. A potential offset to your thesis that life contracts are going to drain the capital is underwriting expenses are going to be a lot lower than you anticipated. If you seperate the stock from the company you can seeing it more clearly. If suddenly things turn up for the life insurance world, money will find its way into this stock. if things go bad for life insurers or other insurers or even banks, money will leave the stock. It is a piece of paper that loosely represents this company. TGIC, a insurance company that went "bankrupt" in 2008, continues to be publicly traded, continues to have idiots talking about it coming back from the dead. RamRe, a stock that went into run-off in 2008, just announced they are going to start writing business again. Their run-off was not much different than PNX's situation.
So how can you call PNX undervalued. Simple question.
Answer: Technically, PNX is right where it should be. Since they have to have very low near term prospects, the stock should trade at a discount to its industry. The life insurance industry is definitely in a down cycle so the industry too is probably undervalued which is how PNX came to be so cheap on a price to cash flow basis and price to statutory capital basis. Personally, I think the stock should be at $4. The company is undervalued because it is priced for death so anything that symbolizes what I believe, which is they are definitely not going out of business, not even close, will make the stock go up.
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