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bergman104

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  1. Spekulatuis, Do you normally value P&C insurance companies based on book? Do you take float into consideration? Yes, PGR is a LT winner. They have increased their revenue growth going into property insurance (they used to do only car) and it’s not clear if they have the same advantage there. It’s trading a bit above its LT valuation baseline. I would buy it if I can get it below 1x EV/ sales.
  2. Has anyone been looking into P&C insurance companies? They've been getting hit pretty hard in this environment. I've been trying to find historically good underwriters, ideally combined ratios of <95%. TRV, WRB, and AFG come to mind. The current interest rate environment is a bit worrisome though.
  3. Thanks for your thoughts. I agree with some of the previous posts that currency risk and the duration of COVID seem to be the biggest sticking points.
  4. Here's a 25-year chart of the Mexican peso versus the USD: https://www.macrotrends.net/2559/us-dollar-mexican-peso-exchange-rate-historical-chart I don't see it evening out over time. More broadly, I've seen many pitches that try to compare growth rates, FCF yields and multiples of emerging market companies in their domestic currencies to companies in the same industry in the US trading at much higher multiples. On the surface, the EM company looks much more compelling, but if you eat USD (or yen or Euro) how much are you actually going to get at the end of the day if you have a long-term currency chart that looks like the peso? I've haven't looked at the Mexican airports specifically, and I agree that airports (if they aren't overlevered right now) are usually good businesses. So, the comment above ultimately may not apply to them. But I do not think you can safely assume that currency moves will just even out in the end. That's an excellent point that I had not considered. Looks like if the long term trend holds, then currency exchange would pretty significantly eat into USD profits.
  5. If I'm honest I think it stacks up great. Most companies I follow that fit your description are still expensive or do not have the long-term growth potential that these companies do. Companies that I would love to buy, like HSY, SBUX, MDT, FICO, MCO, VRSN, NVO, SPGI, are all still trading at 15+ EV/EBITDA. Most of those don't have the compounding growth potential either. I don't find too many opportunities that have fantastic operating margins, are virtually guaranteed to be more valuable in 10 years, and are trading at 10% FCF yield. What companies are you looking at that fit that bill? A widow/orphan stock normally pays $4.00/share, and yields 7%. Price is 57.14 (4.00/.07). Due to Covid-19 related stress, dividend is cut to $1.00; the POS is dumped and sells down to $10.00, at a 10% yield (1.00/.1). You buy it. If post Covid-19, the dividend is restored to its former $4.00 - the cash yield is 40% (4.00/10.00), and the price is back to 57.14 (470% increase). But apparently, this airport authority stock can do better than this ....... SD Agreed with everything people stated above. What you said sound great on paper, but how many of those companies are leveraged or non-competitive positions. You don't even have to name a specific company, just an industry that you like. Further, you haven't actually said anything against my original idea. The whole reason I posted is to find holes in my thesis, so poke away if anyone has insight.
  6. I guess my point was that you can't be certain those companies will be worth more 10 years from now. Will we still be using oil then? Absolutely. But I have no idea what oil prices will do or how the energy industry plays out. Maybe I'm wrong and we would happy to hear a counter point.
  7. If I'm honest I think it stacks up great. Most companies I follow that fit your description are still expensive or do not have the long-term growth potential that these companies do. Companies that I would love to buy, like HSY, SBUX, MDT, FICO, MCO, VRSN, NVO, SPGI, are all still trading at 15+ EV/EBITDA. Most of those don't have the compounding growth potential either. I don't find too many opportunities that have fantastic operating margins, are virtually guaranteed to be more valuable in 10 years, and are trading at 10% FCF yield. What companies are you looking at that fit that bill?
  8. For sure. But does the currency risk matter in the 5-10 year time frame? I know it has been hit hard in the last couple of months, but doesn't that even out over time? You said you've been looking into them. Any thoughts?
  9. Anyone follow PAC, OMAB, or ASR? I stumbled across them in a Seeking Alpha article and think it's one of the better ideas I've found. Huge competitive advantages trading at, from what I can tell, are historically low valuations. I don't have a strong opinion on PAC vs OMAB vs ASR. Each company is much more similar than they are different. If I took a position I'd actually probably buy all 3 to help control risk. Below is a BRIEF overview. I'm happy to go into more detail on any point if anyone is actually interested. General Business Overview Briefly, in 1998 Mexico opened up control of its airport to private companies. It divided the 3 largest airports (besides Mexico City) into 3 separate operations, which subsequently became the home base for PAC, OMAB, and ASR. Collectively they operates all of mexico’s economically viable airports on 50-year contractual agreements (Ends 2048). Generate revenue at regulated rates from airlines while also generating un-regulated rates from hotels, parking, advertisement, retail, and commercial spaces. From a moat perspective, this is about as good as it gets. Pretty tough to compete with the only airport in town. The contract to operate the airport is an irreplaceable intangible asset. This gives them pricing power commercially at their airports, while benefitting from longer term trends of airline growth. Further, there is only room for these 3 competitors, as they control every economically viable airport in Mexico except for Mexico City. It gives them HUGE leverage, which is why the companies are more similar than they are different. Risk First, this year is obviously going to be ugly for airports. For perspective, the airports dropped ~30% in traffic from Feb to March, where they typically increase 20% during the same timeframe. In terms of debt, they all have ~50% of the LTD covered by current cash positions. Additionally, they also are contractually obligated to spend Capex on their current airports, which will be a drain on cash. Hopefully their contracts can be negotiated with the government, rather than taking on additional debt to cover current costs. Long term, the major risk is regulation. The government owns the airports and can take them back if the rules of the agreement are broken. The companies need to submit 5-year annual plans for growth and improvement, if these plans are not followed or accepted then the government can take the airports back. However, I think this is extremely unlikely given the complexity of running an airport and that both sides are currently benefiting from the agreement. Their current contracts do not expire until 2048 and all 3 are in the process of submitting new 5-year plans. Finally, the companies are expanding outside the airport into other countries such as Columbia, Jamaica, and Puerto Rico. Financials They all earn extremely high margins and ~15% ROIC. ROIC has steadily grown over the last 15 years as their non-regulated businesses (like restaurants, advertising, and commercial spaces) gain better footing. Further, all have grown revenue and net income at 15%+ over the last 15 years. They gush free cash flow at ~33% of revenue. Cash operating margins of ~40%. Return on tangible assets of 14%, which I think is pretty impressive given how asset heavy the companies are. These numbers will obviously dip this year and likely for the next few years. But long terms trends are still in place. Long-term Growth Huge run way for growth. Mexico as a country has a growing middle class and airline travel has risen at ~10% CAGR for the last 15 years. Still, citizens travel by plane at <20% of Americans. Finally, each company is focused on expanding non-airline revenue. As they have updated the airports, advertisement, hotels, VIP lounges, restaurants, and parking have become more viable. Part of the reason I love the idea is that airports are one of the few retails places with virtually guaranteed foot traffic. Rents, advertising, hotels, car rentals, and parking can all be priced at above average rates. This part of each business only makes up ~33% of revenues but is extremely high margin. Longer-term, the prospects of the airline industry are great. Mexico has a growing middle class and is a physically large country (important for driving/bus vs airlines). Mexico is the 5th largest tourist destination in the world. Further, each companies is not reliant on a single airport or even a single city. By investing in all 3 companies, I think you help reduce individual risk while getting 3 fantastic companies. Valuation They are all close in terms of valuation, with OMAB being slightly cheaper than ASR and PAC. Combined they are ~12-13 PE right now. EV/EBITA of ~6-7 and FCF yield 10%+. These numbers are based on last year's financials, which will certainly not equal 2020 numbers. Not not going to attempt to predict when the industry normalizes but it will eventually. When it does the airports will capitalize.
  10. We need to stop comparing this to the flu. It's worse in a few ways. A person with influenza A (~75% of flu cases) starts to show symptoms within a day and are typically critically ill 6-7 days later. COVID-19 takes 4-5 days to start showing symptoms, with about 5% of people showing symptoms as late as 11-12 day. Secondly, COVID-19 takes ~3 weeks for ICU admission after initial infection. Meaning the time course is from 3-4 weeks from infection to serious disease. The flu is much more dramatic. The slow process is also why COVID is so scary, because people can spread the infection for so much longer. Finally, our best estimates are COVID is about twice as infective as the flu, which also sucks. I think the arguments about mortality rate are valid. We'd have better data if we had more tests. But if the 1.5% mortality rate holds it will be 15x more deadly than the typical flu. I understand the analogies, but this is not a normal flu season packing into a few weeks. They are different processes and scary for different reasons. Sorry, rant over. Paper on incubation period https://annals.org/AIM/FULLARTICLE/2762808/INCUBATION-PERIOD-CORONAVIRUS-DISEASE-2019-COVID-19-FROM-PUBLICLY-REPORTED Paper on clinical course https://www.sciencedirect.com/science/article/pii/S0140673620305663 Influenza Incubation Period https://www.sciencedirect.com/science/article/pii/S1473309909700696 Incubation period and mortality https://pubs.rsna.org/doi/full/10.1148/radiol.2020200463
  11. Just added to my position of PRAA which I've owned for 2 years now. I'd be happy to give my thesis in more detail but they basically have a duopoly in the credit card debt buying market. With credit cheap, banks have little incentive to sell charged off debt but during the next economic downturn pricing should improve. Until then they are trading at ~12x earnings with plenty of upside when the market turns. I can't seem to get anyone else on board with this one so maybe I'm missing something.
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