CBL Insurance IPO

[BlackPeter]

OK - here we go ... looking forward to a robust and constructive review of my little SWOT analysis:

CBL is one of the newcomers in my portfolio and, after a few warning words from fellow posters about insurance companies in general did I thought it prudent to have another look into this stock before it ends up in my back drawer.

That's how they describe themselves: "CBL Corporation Limited (CBL) is a specialist insurer and reinsurer focused on credit and financial risk. CBL has eight offices spread across 25 countries and almost 550 employees. The company has been operating for over 43 years, and is listed on the ASX and the NZX Main Board."

"CBL specialises in writing building and construction related credit and financial surety insurance, bonding and reinsurance. CBL Insurance currently has an investment grade rating of A- (Excellent) and an issuer rating of a-, with both outlooks ‘Stable’, from A.M. Best Ratings Agency."

They experienced strong and consistent revenue growth (CAGR >30%) in the past combined with healthy and consistent EPS growth (exception: last year mainly due to currency write-offs due to strong NZ$ and one-offs related to acquisition).

At this stage they draw the majority of their income (GWP - gross written premium) from various European countries.


Strengths:

• strong and consistent revenue growth in the past. CAGR (7yrs): 32.6% p.a., forward CAGR (based on analyst estimatees): 27.6%
• "excellent" credit rating: A-, outlook stable
• healthy and consistent EPS growth since 2011 with (so far) one exception in 2016; underlying profit did still grow, but reported profit was down due to one offs (mainly acquisition costs and currency movements)
• forward PE of 10 combined with a forward CAGR of 27.6 - put the numbers yourself into the Graham formula
• increasing product and geographic diversity
• board members have lots of skin in the game. Actually, this is an understatement. Add the better part of the arms and legs to the skin : All board members have substantial holdings - and added up they hold even after the latest "selldown" still nearly 39% of all issued shares;

Weaknesses

• despite a rather strong balance sheet: it is still a quite small insurance company. One major slip-up or oversight might kill them;
• not sure its a real weakness, but the fact that they hold funds in the currencies they operate in means that a strengthening NZ$ impairs their income ... like it did 2016;

Opportunities

• enormous potential through international growth (Europe, SE-Asia, India, US, Mexico)
• growth opportunities based on European customers moving from UK competitors to their EU based daughter company CBL Insurance Europe

Threats

• potential to oversee a major risk in new legislations and economies due to (potentially) too fast growth
• Does the comparatively low SP (given EPS and CAGR) reflect the markets view of "too good to be true"?
• a black swan event always might be just around the next corner, and the history of insurance companies is full of them. One potential black swan I could imagine would be the builders warranty in case of any further systematic failure of NZ building standards (leaky buildings anybody); Obviously depends on where the courts would put the liabilities - they insure only builders liability, not the stupidity of bureaucracy; on the other hand ... their overall NZ exposure is rather small.

Examples for previous "black swan events" hitting the insurance industry in the past - examples to lookout for:

• A number of insurance syndicates forming part of Lloyds of London got bust when US courts started in the 1980'ies to award large punitive damages against (by Lloyds insured) employers in case of asbestos, pollution and health hazard claims. These cases sometimes went back to the 1940'ies ... "a long tail", but given that the insurers in the 1940'ies to 70'ies didn't understood the nature of these (for them future) claims, they couldn't build up appropriate reserves.
• HIH Insurance (Australian largest ... until 2001) managed itself out of existence due to combination of management incompetence, misrepresentation and open fraud (managers went into jail).
• AIG (the worlds biggest insurer) nearly wiped itself out by offering a new product of "credit default swaps" - basically an insurance against the default of certain financial instruments. Highly profitable until the GFC wiped the value of subprime mortgages and people started to claim on these swaps.
• AMI had enough reinsurance for one major earthquake, but not for a sequence of several earthquakes. It killed the company
  

While I do see the inherent risks for the insurance industry would I think that buying into CBL might be worth while the risk ... as long as the returns provide an appropriate reward for latter. If the Grahams formula makes any sense, than the potential gains are huge.

Interested in other peoples views. Any strengths, opportunities, weaknesses or threats I should add?

Discl: hold (a medium sized parcel);

DYOR;

[percy]

Lloyds also got caught big time with insuring technology, such as computers, that became obsolete quicker than they thought they would.
Back to you and CBL.I think you now have a better understanding of CBL.

[macduffy]

CBL see opportunities in Brexit situation.

http://www.nzherald.co.nz/business/n...ectid=11849115

I hold.

[Joshuatree]

Chairman's Address to Shareholders
CBL MD address to Shareholders for AGM

Truly a global business now.Scale now in france.
At pains to clear up the FETA below.
Onwards and upwards ,hopefully.


The second item was the foreign exchange translation adjustment made in order to express our balancesheet assets and liabilities in a single reporting currency - New Zealand dollars. The foreign exchangetranslation adjustment is not a realised expense, and not a cash item, (which is why it is added back to netreported profit after tax when we calculate dividends). The adjustment in 2016 was a negative $9.8 million,compared with a positive adjustment of $3.9 million in 2015. Neither the positive adjustment nor thenegative adjustment mean anything insofar as measuring our underlying operating performance. This$9.8m foreign exchange translation negative adjustment in 2016 is required to flow through our Statementof Profit or Loss, and reduced our net profit after tax to $30.7 million, which is a reduction of 13.5%compared to 2015 net profit after tax.

[BlackPeter]

Looking pretty cheap to me ... forward PE of 9.1 and this with a forward CAGR of 27.6 .

Feels like the SP just went through a local dip at 3.24 but now only 28 shares at 3.28 left.

Some more analysis 4 posts back .... but I know, we shouldn't talk too much about nice little earners, just drives the SP uphill - and who would want that?

DYOR

Discl: holding and just picked up some more at 3.25

[kiora]

Looking pretty cheap to me ... forward PE of 9.1 and this with a forward CAGR of 27.6 .

Feels like the SP just went through a local dip at 3.24 but now only 28 shares at 3.28 left.

Some more analysis 4 posts back .... but I know, we shouldn't talk too much about nice little earners, just drives the SP uphill - and who would want that?

DYOR

Discl: holding and just picked up some more at 3.25

Keep buying BP

[Snow Leopard]

Looking pretty cheap to me ... forward PE of 9.1...

"and where would that P/E ratio of 9.1 come from?" he asked purely out of curiosity.

Best Wishes
Paper Tiger

[BlackPeter]

"and where would that P/E ratio of 9.1 come from?" he asked purely out of curiosity.

Best Wishes
Paper Tiger

Easy ...
Estimated earnings (EPS) for 2017: 27.7cents 2018: 37.7 cents 2019: 42.3 cents
(all according to 4-traders: http://www.4-traders.com/CBL-CORPORA...78/financials/).
Makes an average forward EPS of 36 cents.
Current SP (328 cents) divided by 36 cents equals 9.1 (well, limited to one digit after the dot).

Makes sense?

[Snow Leopard]

!

I am currently treating analysts estimates for both FY17 & FY18 with a reasonable degree of caution.

BW PT

Disc: Hold

[kiora]

!

I am currently treating analysts estimates for both FY17 & FY18 with a reasonable degree of caution.

BW PT

Disc: Hold

Suggesting analysts are too optimistic or pessimistic PT ?