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Where's Warren? Clipping BRK dividends? Or going on an elephant hunt?


twacowfca
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Barrons still doesn't know what to make of Warren.  Their latest article speculates that the estimated $50 billion in cash that BRK is projected to have on its balance sheet by EOY 2011 will be used to pay BRK's first dividend.  This would be out of character because there are great large cap businesses selling at bargain prices that have been bypassed by the recent stock market advance.

 

Let's see.  Is there any large company out there with a market cap of about $30 billion that Warren especially likes?  One that he likes so well that he would be willing to let the 10% preferreds he bought in the crisis be redeemed early, giving up a hefty coupon to increase his kitty for acquisition?  Perhaps one led by a CEO that says he would be delighted for Warren to own more of his company than the 10% he already owns, while Warren says he would also be delighted to own a bigger chunk?  A company that might take more travel time from his schedule to spend on acquisitions than he could spare without giving up his seats on Coca Cola's and Washington Post's boards?  A company in his favorite industry?

 

If you can name that company, you will also name our second largest holding.  :)

 

 

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Interesting.

 

The dividend idea is a damn joke.  At least in my opinion.

 

Munich Re makes some sense.  It is about time Buffett uses a bigger gun.  My guess is still a play in the utility sector.

 

 

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Munich Re. would seem to be a decent fit for somebody/something with tons of cash.  Currently trades at about 1.1x equity and historical ROE is in the low teens.  For the smaller investor, aside from the speculation that Buffett may want the whole thing, it does not look super attractive.  Franck, what is your valuation analysis?

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Munich Re. would seem to be a decent fit for somebody/something with tons of cash.  Currently trades at about 1.1x equity and historical ROE is in the low teens.  For the smaller investor, aside from the speculation that Buffett may want the whole thing, it does not look super attractive.  Franck, what is your valuation analysis?

 

Munich Re has made huge improvements in their underwriting discipline and investing in the last couple of years.  They are being managed now much as Warren would like them to be managed.  They will be in the sweet spot when Solvency II starts to pinch the European primary insurers increasingly in the next 1 - 3 years.  Increased capital requirements are likely to be met mostly by ceding more premiums to well capitalized reinsurers like Munich Re.

 

My valuation analysis is what a private buyer would be willing to pay for them.  They wouldn't be willing to sell to almost all buyers, only to a buyer like BRK that would be hands off and supportive of their focus on building shareholder value.  Referencing the recent Burlington Northern acquisition, Warren might be willing to pay a 40% to 50% premium to the current price for a world class reinsurer with enormous float that has been around much longer than Warren has.  :)

 

If MUV were valued by their sustainable float plus equity, as Warren would value them, a 40% premium to EOY BV would be a steal!  Munich Re's investment portfolio recently had a market value of about € 185 million.  If Warren could buy the whole company for € 30 million, BRK would get more than € 6.00 of sustainable investments for less than each € 1.00 of purchase price.  :)

 

 

Such an acquisition would not be unprecedented.  Remember the Gen Re acquisition, an even bigger elephant to swallow, given BRK's smaller size then.

 

A few days ago, Warren was quoted in a Washington Post article as saying that he was leaving the WPO board "because of other  travel commitments linked to Berkshire Hathaway acquisitions abroad."   This does not necessarily mean that there is an acquisition of Munich Re under consideration, but I don't think Warren would say no if they were available at a fair price.  :)

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Right on.

 

Twacowfca, do you think there could be any chance of losing profitable business if Buffett bought Munich Re?  I read an article from a year or so ago where an analyst said that the stake couldn't be strategic because if BRK bought Munich Re, Munich Re would likely lose business, as insurers like to diversify among non-affiliated reinsurers.

 

That doesn't sound right to me because the regulated re-insurance entities would remain separately capitalized, separately regulated, and stronger as a result of being tied to Berkshire's other operating businesses.  But I'd like to get your take on the analyst's misgivings.

 

Thanks in advance.

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Right on.

 

Twacowfca, do you think there could be any chance of losing profitable business if Buffett bought Munich Re?  I read an article from a year or so ago where an analyst said that the stake couldn't be strategic because if BRK bought Munich Re, Munich Re would likely lose business, as insurers like to diversify among non-affiliated reinsurers.

 

That doesn't sound right to me because the regulated re-insurance entities would remain separately capitalized, separately regulated, and stronger as a result of being tied to Berkshire's other operating businesses.  But I'd like to get your take on the analyst's misgivings.

 

Thanks in advance.

 

Gen Re and the other BRK reinsurers have some overlap with Munich Re, but the potential for chasing the same business has to some degree been resolved by BRK and also MUV passing on business during the soft market.  Many other reinsurers have also pulled back, and sharp observers like Montross and Berkley think the soft market has reached bottom.  Munich Re is especially strong with 64% of its business in the EU  where BRK has merely a small presence.

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I feel like Warren jumps on whatever is the best opportunity in front of him at the time (if anything meets his criteria). That's why he does deals so fast; there's no detailed masterplan, just certain selection criteria that must be met.

 

IMHO, If Munich Re is available at an attractive price and he can't find something else that has a higher expected return, he's not going to pass because it produces too much cash. He might pass for other reasons, but having too much cash that then must need to be redeployed is a high quality problem to have. Once that cash builds up again he can set his sights on a more capital-intensive elephant when the opportunity comes (big utility company? big manufacturer?).

 

If he truly can't find anything after a while, he can always pay a dividend, but I'm sure that's not his preference -- he'll probably just wait for a big market correction/panic and get some stocks and/or businesses instead. He's patient and I bet his successors will be too. Maybe he'll have to look more and more outside the US to find stuff to buy, though...

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EOY Munich Re results released today suggest the soft market may be starting to turn in Europe earlier than worldwide with the prospect of higher capital levels required for the weaker primary insurers under Solvency II.  Munich Re's premiums in €€ up 4% in the peak period for renewals in January.  Renewal pricing up 0.1 %.  This contrasts with the 7.5% drop in January 2011 renewal pricing worldwide reported recently by Guy Carpenter.  Q4 CR 96%.  Full year 2010 CR 100.5%.  €1B share buybacks on an equity base of €23B planned between now and their AGM in April. This should be quite accretive to value as current P/B is 96%. Dividend increased by €.50/SH to €6.25/SH.  Profit at their consolidated primary insurance business, ERGO, doubled, but still a relatively small part of the whole business.   :)

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twacowfca, I think the share buyback volume is a little bit smaller:

 

"The share buy-back programme launched in May 2010 is proceeding according to plan. By the end of January 2011, Munich Re had repurchased a total of 7 million shares with a volume of €752m. Before the next Annual General Meeting on 20 April 2011, shares with an overall volume of up to €1bn are to be acquired."

 

it´s €248m not €1B  ;)

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twacowfca, I think the share buyback volume is a little bit smaller:

 

"The share buy-back programme launched in May 2010 is proceeding according to plan. By the end of January 2011, Munich Re had repurchased a total of 7 million shares with a volume of €752m. Before the next Annual General Meeting on 20 April 2011, shares with an overall volume of up to €1bn are to be acquired."

 

it´s €248m not €1B  ;)

 

Thanks, Charlie.  The correction is much appreciated.  :)

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  • 1 month later...

I bought more Munich Re shares today.

 

“Any impacts due to major accidents in Japanese nuclear power plants will not significantly affect the private insurance industry,” Munich Re said in a statement today. “In connection with earthquake covers, in Japanese personal lines business only a small portion of the risk is transferred to other countries.”

 

The reinsurer said it’s “far too early at this stage to issue an estimate of economic and insured losses,” reiterating earlier comments. Munich Re shares dropped 3 percent to 108.40 euros in Frankfurt, following a 4.3 percent decline on March 11.

 

 

Charlie

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I bought more Munich Re shares today.

 

“Any impacts due to major accidents in Japanese nuclear power plants will not significantly affect the private insurance industry,” Munich Re said in a statement today. “In connection with earthquake covers, in Japanese personal lines business only a small portion of the risk is transferred to other countries.”

 

The reinsurer said it’s “far too early at this stage to issue an estimate of economic and insured losses,” reiterating earlier comments. Munich Re shares dropped 3 percent to 108.40 euros in Frankfurt, following a 4.3 percent decline on March 11.

 

 

Charlie

 

 

We used more than half the cash we raised last Friday to buy more Munich Re early this week, increasing the size of our second largest holding by 50%.  Warren's remarks in the TV interview several days ago indicate that the probability for a major acquisition is not high because approval by a board of directors is often difficult.  Nevertheless, Munich Re appears to be a compelling value in view of their over capitalization and the prospect that they may benefit more than many other insurers if recent tragic events support hardening in property rates.

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  • 4 weeks later...

Munich Re will not start their new share repurchase plan soon, because of Japan. The old repurchase plan will end next wednesday. (sorry, no english link)

 

ERDBEBEN: Munich Re setzt Aktienrückkauf aus

Mi, 23.03.11 16:48

 

MÜNCHEN (dpa-AFX) - Der weltgrößte Rückversicherer Munich Re legt angesichts der Milliardenbelastung aus Japan sein neues Aktienrückkaufprogramm auf Eis. 'Wir führen das laufende Programm bis zur Hauptversammlung im April noch zu Ende', sagte eine Konzernsprecherin am Mittwoch. 'Mit dem neuen Programm werden wir aber vorerst nicht beginnen.' Damit bestätigte sie einem Vorabbericht des 'Handelsblatts' (Donnerstag).

 

Der Dax-Konzern hatte erst Anfang Februar ein neues Rückkaufprogramm über bis zu 500 Millionen Euro angekündigt, das bis zur Hauptversammlung im April 2012 abgeschlossen werden sollte. Im laufenden Rückkaufprogramm bis Ende April hat die Munich Re bisher Aktien im Wert von 922 Millionen Euro zurückgenommen. Dieses soll der Sprecherin zufolge bis zur geltenden Grenze von einer Milliarde Euro fortgeführt werden.

 

Munich Re hatte wegen des Erdbebens und Tsunamis in Japan am Dienstagabend sein Gewinnziel gestrichen. Die Katastrophen dürften das Unternehmen mit 1,5 Milliarden Euro vor Steuern belasten. Das war deutlich mehr, als Analysten erwartet hatten. Das Gewinnziel von 2,4 Milliarden Euro ist aus Sicht des Vorstands nun nicht mehr zu erreichen./stw/ksb

 

Quelle: dpa-AFX

 

Charlie

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Munich Re will not start their new share repurchase plan soon, because of Japan. The old repurchase plan will end next wednesday. (sorry, no english link)

 

ERDBEBEN: Munich Re setzt Aktienrückkauf aus

Mi, 23.03.11 16:48

 

MÜNCHEN (dpa-AFX) - Der weltgrößte Rückversicherer Munich Re legt angesichts der Milliardenbelastung aus Japan sein neues Aktienrückkaufprogramm auf Eis. 'Wir führen das laufende Programm bis zur Hauptversammlung im April noch zu Ende', sagte eine Konzernsprecherin am Mittwoch. 'Mit dem neuen Programm werden wir aber vorerst nicht beginnen.' Damit bestätigte sie einem Vorabbericht des 'Handelsblatts' (Donnerstag).

 

Der Dax-Konzern hatte erst Anfang Februar ein neues Rückkaufprogramm über bis zu 500 Millionen Euro angekündigt, das bis zur Hauptversammlung im April 2012 abgeschlossen werden sollte. Im laufenden Rückkaufprogramm bis Ende April hat die Munich Re bisher Aktien im Wert von 922 Millionen Euro zurückgenommen. Dieses soll der Sprecherin zufolge bis zur geltenden Grenze von einer Milliarde Euro fortgeführt werden.

 

Munich Re hatte wegen des Erdbebens und Tsunamis in Japan am Dienstagabend sein Gewinnziel gestrichen. Die Katastrophen dürften das Unternehmen mit 1,5 Milliarden Euro vor Steuern belasten. Das war deutlich mehr, als Analysten erwartet hatten. Das Gewinnziel von 2,4 Milliarden Euro ist aus Sicht des Vorstands nun nicht mehr zu erreichen./stw/ksb

 

Quelle: dpa-AFX

 

Charlie

 

Here's the Google Translate translation:

 

German to English translation

EARTHQUAKE: Munich Re suspends share buyback

Sun, 23:03:11 16:48

 

MUNICH (Reuters) - The world's largest reinsurer Munich Re sets, given the billions of stress from Japan its new share repurchase program on hold. "We run the current program until the Annual Meeting in April, to end ', a group spokeswoman said on Wednesday. 'With the new program, we will not start but for the moment. "Thus confirming a preliminary report of 'Handelsblatt' (Thursday).

 

The Dax group had until early February a new buyback program of up to 500 million euros announced, which should be completed by the Annual General Meeting in April 2012. In the current repurchase program by the end of April, the Munich Re has been taken back shares worth 922 million euros. This is the speaker, according to the applicable limit will be continued by one billion euros.

 

Munich Re was canceled because of the earthquake and tsunamis in Japan on Tuesday its profit target. The disasters are likely to burden the company with 1.5 billion euros before taxes. This was had a lot more than expected analysts. The profit target of 2.4 billion € is from the perspective of the Board will no longer erreichen. / stw / ksb

 

Source: Thomson Financial

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