Result must be due soon?
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Result must be due soon?
Devons still buying, good to see a Fund manager putting their (or more correctly someone elses) money where there mouth is. They have commented in the press a few weeks back they thought TWR could be a takeover target now.
maybe GPG will takeover and manage Coats pension liabilities from within :p
TWR will be much smaller and will be expelled from NZ50 club I think if they remain listed - I am not sure.
According to today's half year results announcement, post-divestments and further share cancellations (as hinted-at in the results), TWR should pay a div of 18-20cps from 2014, being 90-100 % of NPAT.
Didn't say if that is or isn't imputed.
A div (or earnings) of 20cps should be enough to fund a takeover at $2.60, so, yeah...
Im wondering how they can pay this div going forward when their only remaining business is making a loss?
The general insurance segment result included $19m of 'one-off' provisions for extra Christchurch earthquake costs.
Adjust for that and the result is a profit.
The directors seem to think that the remaining business (general insurance) will make a NPAT of 18-20cps from here on after share cancellations and debt repayment.
If that's fully imputed then the gross div yield is in the range 13.4% to 14.9% based on current share price of 1.87.
Christchurch has hammered TWR's results for 3 years now. Any chance this will be the last year? Still only settled 46% of claims by value. The can't last for ever.....surely!
The all singing all dancing IT system they have been working on for years has obviously been an unmitigated disaster. Who knows what the opportunity cost has been. Written off $34.5m this year and they are moving to a new system, Insurance Faces. Lets hope it's compatible with potential acquirers!
Reducing corporate overheads from $7.1m to $2.2m is at least some evidence this strategic review will deliver something positive.
Stumbled across this article from a few days ago on Stuff.co.nz. Just the stuff a small shareholder likes to read :-)
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Sweet time for Tower shares?
Some people have been thinking the sharemarket looks a bit toppy.
A glance at the NZX50 index shows a peak of 4671 on May 13, having gained relentlessly since late June last year. It also shows a noticeable drop in the past three weeks of about 4 per cent.
In this environment bargains can be scarce, so it's worth paying attention when a professional investor starts talking about a company being ridiculously undervalued.
The company in question is Tower, a household name in insurance that has been going through major pruning by divesting its life, health and investment businesses. The professional investor is Devon Funds, whose position in Tower is now about 8.6 per cent, worth $33 million or so at current prices.
For a fund manager that's a relatively big stake and it suggests Devon is highly confident in its view, having first disclosed a holding of 5 per cent a year ago.
The rationale goes something like this.
When Devon bought its last chunk of shares, Tower had a market value of about $368m, which will fall to about $254m after it pays out $114.5m of cash proceeds from the sale of its life insurance arm, probably in July.
At its interim results briefing last week, Tower said its remaining general insurance business had average profits over the past three years of about $24.7m.
A bit of arithmetic produces an implied price to earnings multiple of 10. You can tweak that a bit further using Tower's most recent pro forma figures, which indicate what Tower would have earned last year if it had looked then the way it does today.
On that score Tower thinks its net profit would have been $28.7m, implying a p/e ratio of nine.
Given the New Zealand market average multiple of about 15, Tower's much lower figure attracts attention as a potential buy. However, it doesn't in itself mean the company is undervalued because what matters more is how it will perform in future.
This is difficult to get a handle on - who knows how the business will go after lopping off so many branches?
Tower also has significant exposure to Christchurch and although the costs should be predictable by now, they could still turn up a surprise - the company last week said it had increased its provisions for the February 2011 earthquake by $14m citing, "higher levels of inflation, the difficulty and delays in obtaining EQC data and new claims".
Meanwhile, a chunky amount of Tower's business comes from the Pacific Islands, which accounts for 14 per cent of its customers and about 20 per cent of its gross written premiums.
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The company says its Pacific business is high margin, but the region is known to get the odd cyclone so the margin presumably just reflects risk.
In addition to the usual imponderables, a low p/e multiple can mean the business has a poor outlook.
In this case though, Tower thinks its position is good, despite a single-figure market share - describing itself as a "strong independent participant in a growth market".
One reason the company thinks it's in good shape is the amount of surplus capital sloshing around. Having piled up $307m from selling businesses, Tower has already shovelled $119.2m back to shareholders and should shovel a further $114.5m out in a month or two.
Even after paying down debt and covering sale costs, there's still $20m left over to add to general insurance capital.
The amount of capital Tower must have is determined by the Reserve Bank as insurance regulator and the ongoing business is expected to require a minimum of $72m.
Being a prudent type, Tower aims to have 175 per cent of the minimum, which brings the requirement up to $132m.
However, Tower's cash pile-up means it will have insurance capital of $200m - $68m more than its self-imposed minimum and $128m more than the legal minimum.
This capital is what Warren Buffett, a keen investor in insurance, calls float. It has several advantages for shareholders: One, you can make money from investing in the float; two, a bigger float means the business can insure more customers; and three, excess float can be paid out to shareholders at some point.
The first point isn't a great benefit right now as interest rates are so low, but the second and third are right in the mix - Tower itself says the extra money will support growth or enable a future release and distribution of capital.
But to another well capitalised insurer the $128m surplus makes Tower an attractive takeover target, because the money can be taken out straight away. So to an acquirer Tower's effective market value of about $254m looks like 265 minus 128, or about $126m, or a p/e of about 4.
I've only done a back-of-the-envelope version, but the inference from these numbers is that to the right buyer Tower could be worth a lot more than it is now.
Add in that Tower's 33.6 per cent shareholder GPG is committed to sell, probably within the year, and you have an ideal morsel for a potential buyer. A price above $3 a share is not out of the question.
Of course, most retail investors would not want to buy shares in reliance on a takeover premium. The backup in this case is that Tower expects to be a good dividend payer once its reorganisation is complete.
Last week it said 18-20c a share was on the cards in future years, which, after a bit more arithmetic, implies a dividend yield of about 10 per cent.
That, in a nutshell, is the "buy" case for Tower shares.
I should stress that not everyone agrees with it. Forsyth Barr analyst John Cairns, for example, has a "hold" recommendation, saying he is "unconvinced about the economic merits of a capital intensive, sub-scale, general insurance business" and sees a limited pool of buyers in a takeover scenario.
Still, it gives investors something to think about.
Tim Hunter is deputy editor of the Fairfax Business Bureau.
- © Fairfax NZ News
Recent developments felt like a garage sale:mad ;:. But can't sell the last remaining bit of the business:D. What a sorry tale:t_down: