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Anyone loading up on MFC?


alertmeipp
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MFC is in the dog house right now because the new CEO is diluting the company to solidify the balance sheet.

I personally think it is an opportunity to buy as it looks like the same old pattern of a new CEO cleaning the house to start his reign from good ground and thus having better chance to look good in the future. At the same time, adding to reserve might just be the right thing to do for MFC as they took risk in their operation by not hedging their equity-linked liabilities.

 

bad for old investors, good for the new investors. 

makes me think of Wayne Gretzky's quote: "Skate to where the puck is going, not to where it is."

 

The new CEO seems to have a more prudent approach.

 

 

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I havent even looked at it. My thesis is this

 

Lancashire Holdings - Solid underwriting profit quarter after quarter at or near book value. Profits and Excess capital are paided out via dividend

 

FFH - Solid investment performance, strong risk management, and a play on a hard market. A leveraged hedged fund so to speak.

 

.CNA - Weak underwriting but, strong backers and only 60% of book value. Deep Value Discount. Also a turnaround play on Chubb Management.

 

What does MFC Profit. 

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can you guys tell me how you are thinking about mfc valuation?

 

assume that MFC makes ROE of 12%( which is lower than what they did historically):

This equates to E=1.86Can$/share for 2010.

Put a P/E=12 multiple and you get P= 22,32$/share.

If MFC make 4B profit or 2.28$/share ,about the amount they did in 2007 and 2006, then with a P/E of 12, you get P=27.4$.

 

So it looks undervalued, but it's not trading half of IV.

 

 

 

 

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Check out their latest presentation on how equity market, corp bond rate and treasury will impact the earning.

 

Approximate impact of 100bps parallel decrease in interest rates -$2.0B

10% drop in equity market will cost -1.3B

 

So, the earning will be much lower or higher depending on how the interest rate and equity market go. I think that scare many ppl away from it.

 

 

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I have bought a small common stock position in MFC about a month ago.  I would buy more but I am dry of powder. 

 

I will be the first to admit that I have only skimmed any financial reports on the company.  However,

1) I have dealt with the company in various capacities for decades

2) Management is sound

3) I have eyes wide open when it comes to their stock based products they are selling that have caused them such grief.

4) They are raising cash and saving money

5) They have a strong Asian presence.

6) A good chunk of their business is a nearly insurmountable moat - government pension funds, unions.

7) Trading at book.

 

I also have a bigger position in Power Financial which is at least 50% cheap (I know it better than MFC).

 

And I recently took a position in Sun Life - also trading at book.

 

I would put them all in Buffett's category of a fine businesses going through a time of trouble.

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I also have a bigger position in Power Financial which is at least 50% cheap (I know it better than MFC).

 

Could you pls clarify your basis of concluding PWF is 50% cheaper? If you are using P/B, I'd like to hear your thoughts on using price to tangible book. The problem with using reported book is that it is distorted by goodwill which is not comparable among companies.

 

I'm warming to MFC at these prices even though it is probably the most vulnerable of the lifecos to a market correction. Prior to their hedging "misstep," MFC mgmt seemed to me to be the most highly regarded among the Canadian lifecos. I'm wondering whether their "not hedging" should be compared to Buffett's sale of index puts and that the market has unduly penalised them. The long term nature of these equity guarantees are similar to BRK's puts and in all likelihood they wil be profitable eventually.

 

I'm only beginning to look at MFC now so could be wrong. For e.g., it is quite possible, though unlikely, that they were selling these guarantees indiscriminately as AIG did with their CDS's. This is what I am trying to get my head around - whether mgmt understood and managed the risk or whether they were just lucky that the market decline stopped where it did before MFC became insolvent.

 

What I like is that Don Gauloein(?) (can't spell nor pronounce his name!) seems to be long term thinking and not too worried about the stock price (at least in the short term).

 

 

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oec, My thinking is only that PWF is 50% cheaper than it should trade at, mostly on a normalised earnings basis.  It is a very tightly run operation and most of the recent problems were due to reduced AUMs in the assorted Mutual Fund operations.  Prior to the downturn Power consistently traded at PE 12-14. 

 

I was not comparing it to MFC directly.  I just happen to know PWF better than MFC and have more confidence in its management particularly since the crash. 

 

If you hadn't guessed I have been buying up dividend paying stocks with long histories of raising their dividends.  Now I realize that MFC is not in that category but at some point they will likely be in a position to play catch-up.  My general thinking is that from here for a number of years the only gains one sees may be from dividends.  So as I see these various operations come on sale I am willing to buy bits and bites of their stocks. 

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