Friday, January 22, 2016

27th AIM student equity update (by Travis Mantel), Validus Holdings, Ltd. (VR, $42.57): “Finding Growth in Bermuda”


Validus Holdings, Ltd. (VR, $42.57)

By: Travis Mantel, AIM student at Marquette University

 Image result for Validus Holdings
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

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