By:
Travis Mantel, AIM student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Validus Holdings, Ltd. (NYSE:VR) provides reinsurance and insurance
products that are concentrated on short-tail risks. They are headquartered in Bermuda but operate
internationally in the United States, China, India, Brazil, along with other
countries.
• Validus has been able
to beat EPS estimates even with higher-than-anticipated catastrophe losses due
to the earthquake in Chile and explosion in Tianjin, China.
• AlphaCat (subsidiary)
has grown assets under management by 70% from $1.4 billion in 2014 to $2.4
billion in 2015.
• Other than organic
growth, Validus completed a stock purchase agreement with a New York based firm
to penetrate different product lines in the northeast.
• Dividends have steadily
increased since they started distributing dividends in 2008, and they have
reported 2015 annualized dividends of $1.28.
• A new VP was appointed
in Atlanta that brings expertise in broker relationships and underwriting
philosophies that will help Validus meet their 2016 growth plans for the U.S.
Key
points: Validus remains competitive in the insurance and
reinsurance industry. While they report
their 2015 numbers on January 28th, they are estimated to grow
earnings by around 20% from 2014. Validus
dealt with much higher than anticipated catastrophe loss in Q3 with the
explosion in Tianjin, China and the earthquake in Chile, but they were still
able to post EPS of $.82 for Q3 2016 beating estimates by $.08.
On January 12, 2016,
management announced that assets under management for AlphaCat (subsidiary)
came in at $2.4 billion for 2015. This
is up 70% from 2014’s assets under management.
The continued success and growth of AlphaCat has reaffirmed investor
confidence in Validus Group’s strategy.
At the end of 2015
another subsidiary of Validus, Western World Insurance Group, entered into a
$3.8 million stock purchase agreement to acquire WRM America Indemnity Co. Validus already does about a quarter of their
business in the United States, but this acquisition helps them penetrate the
fire, marine, and casualty insurance market in New York.
Lastly, Validus announced
a $.32 per share quarterly dividend for Q4 of 2015. This represents a $1.28 annualized dividend
for 2015 representing a dividend yield of 2.96%. Since 2008 their dividends have increased
from year to year and from 2014 to 2015 their dividend grew by 6.67%.
What
has the stock done lately? In
2016 VR has experienced a 6.7% drop in their stock price. This is consistent with the world markets
within the past couple of weeks. They
have seen positive changes in the stock price three times so far this
year. This came on January 5 when they
appointed a new VP in Atlanta, January 12 when AlphaCat announced an increase
in AUM, and January 14 when they announced their increase in 2015
dividends. 2016 has been a rough year so
far for many companies and Validus is no exception. They opened 2016 with a price of $45.60 and
are currently trading at $42.57.
Past
Year Performance: While in recent weeks the stock has
suffered, Validus is up 6.99% in the past 52 weeks. This is due in large part to VR growing their
AUM, increased premium revenues, and increased earnings. They are currently trading just below their
accounting book value of $43.59. VR has a
52 week range of $39.65-$48.22.
1
Year Stock Chart
My
Takeaway
Validus has been able to
grow their business through both organic and artificial growth. Their strategy for growth has continued to
work for them and a new prospective will be brought to the table with the
addition of a new VP. They continue to
penetrate new markets through acquisitions and have been beating EPS
estimates. While recently they have been
beaten down by the world markets; their strong business model is setting them
up for success in the future.
1
Month Stock Chart
Source:
FactSet
