Chesnara Share Discussion Threads

[banj] 04/10/2009 13:35

Thanks RS, nice one. :-)

[rik shaw] 04/10/2009 13:29

Mos MIDAS Share tip:

[mctmct] 02/10/2009 11:46

It's good to see them holding a beauty parade for the auditor - it keeps the costs down. Deloitte's used to have the lowest fraud rate in the Big 6 (when there were 6) because their due diligence was superb. The head of fraud was John Magill (who revealed the fraud at Westminster Council when he was district auditor). He's the most honest auditor I ever met, and he can smell trouble at 5 miles. Is he still at Deloitte's?

[jonwig] 24/9/2009 18:52

Hi, Wilmdav - I see you haven't lost your nose for an opportunity!

Denis's point about CSN trading at a discount to its EEV is, of course, true of all life companies (30 - 40% disc) but I think a narrower discount is merited in the case of a closed fund (lower costs), and the EEV of CSN will probably show as around 215p when the Moderna acquisition is consolidated.

CSN have said that acquisition opportunities of run-off businesses at the right price are getting harder to find, but I think they might have a good chance of re-floating Moderna at a nice profit in a few years: after all, it was sold by silly old Kaupthing.

[wilmdav] 24/9/2009 17:25

Dipped a toe in today after chancing on a read of the recent IC article. I still have plenty to learn about valuing life assurance companies and was consequently pleased to find Jonwig and Chairman here present.

[kirbydon] 20/9/2009 10:25

Thanks Den

[denis2605] 16/9/2009 12:44

Kirbydon - I'm no expert but CSN is trading a discount to its EEV. Stock-pickers still seeing some value (irrespective of ex-div), perhaps?

[kirbydon] 14/9/2009 09:39

Still on the up even after x date,why ?

[jonwig] 11/9/2009 14:25

Thanks IG - I see the old story of two potential further acquisitions is still in place, which must be a positive.
And could they become a target themselves? Resolution is after bigger fish, maybe.

[investinggarden] 11/9/2009 12:54

Add recommendation from Growth Company Investor

[sandbank] 09/9/2009 13:03

MAKINGHEAPS: ...probly just the usual, boring, day-after-day rise. :-)

[jonwig] 09/9/2009 12:06

Nice to see a rise and the divi safely credited.

LUDERITZ - true, they probably still hold some ... even so, a fair chunk has been painlessly absorbed.

[luderitz] 08/9/2009 16:00

Nice bit of profit taking by Commerzbank AG today, all 9.89% sold.. and share price not moved..yet.

Ed: Correction, they are only saying that they have dropped below 5%.. my mistake -):

[jonwig] 07/9/2009 12:39

Thanks RCT.
The IC site is free for this week (need to register though) so I don't feel too bad about printing their article:

Chesnara has always looked like a smart life assurance play. The group, which manages the run-off of closed life funds, has traditionally delivered high returns because overheads are low. That's because the back-office operations for such a relatively simple business have been outsourced, so staff numbers are low at less than 20. Inevitably, this wind-down process throws off cash - fuelled by the associated lower regulatory reserve requirements.

In order to keep the business moving, however, Chesnara must remain on the lookout to make fresh acquisitions. The trouble is that competition for closed-life books has increased in recent years. So management has stepped outside of its core closed-life strategy with the purchase of Stockholm-based life assurer Moderna Forsakringar. Moderna specialises in corporate and personal pension arrangements and life assurance policies, and has around 9 per cent of the Swedish unit-linked market - so it's a deal that should hold plenty of promise for Chesnara.

Indeed, Moderna only came to the market at all as part of a fire-sale by its previous Icelandic owner, Glitnir Bank, and Chesnara duly obliged by snapping up the company at an impressive 63 per cent discount to its estimated embedded value. That's significant because the deal should boost Chesnara's embedded value by around £30m from its end-June £178.9m figure. It will also add another 75,000 policies to the 184,000 life assurance and pension policies that Chesnara already runs. And while the £20m cost of buying Moderna has reduced the group's capital solvency ratio, this remains extremely healthy at 283 per cent.

Chesnara hasn't been immune to the recent tough investment climate, though. While equity values have been rising fast since March, the three previous months were little short of a bloodbath. So the group's two existing managed funds - comprising a majority of policyholders' funds - both returned a negative 8.1 per cent performance in the 12 months to end-June. Still, this was better than the 13.5 per cent decline achieved by the Association of British Insurers' Life Balanced Managed Fund sector. And at least shareholders' funds remain placed safely in cash (70 per cent) and fixed-interest instruments (30 per cent). Moreover, the group's overall performance was enough to push profits up from £10m in the first half of last year to £11m in the first half of this year (on an IFRS basis), while profits on a European embedded value basis rose from a loss of £5.2m last time to a profit of £7.8m as at end-June.

The impact of weak investment market conditions has also been offset by improvements in mortality rates, which means a lower payout on life policies. Policy attrition (or persistency rates) have slowed significantly, too, meaning that fewer policyholders are cashing in their policies early. However, Chesnara hasn't chosen to reflect this in enhanced embedded value assumptions. This is because management reckons that, with unemployment still rising, persistency rates could become less favourable in the second half.

Chesnara still retains some exposure to compensation claims from the past mis-selling of insurance policies. However, nearly 80 per cent of all relevant mortgage endowments are time-barred from the claims process and complaint numbers have continued to fall. Management thinks that existing reserves are adequate.

SHARE TIP SUMMARY:
Buy

Chesnara is already reportedly in talks with private equity firms to raise money for further acquisitions, so funding future growth shouldn't be a problem. Meanwhile, the business model continues to provide a favourable return, despite tough investment conditions. Yet the shares trade at a discount to embedded value, and a prospective dividend yield of over 9 per cent looks especially tasty for income investors. Buy.

[rcturner2] 07/9/2009 11:13

Tipped in the IC on Friday as a buy. I bought in this morning.

[zangdook] 05/9/2009 09:28

320k buys to 24k sells and the price at close is the same as at open. Should go up a bit before the ex-div on Wed.

[this_is_me] 04/9/2009 13:37

It has been going up steadily and pays huge dividends.

[zangdook] 04/9/2009 11:35

Relatively high volume today, and almost all buys (except for tiny sells every five minutes like clockwork) yet no movement in the price. Surely this should pop up a bit soon.

[banj] 29/8/2009 13:10

Thanks Jw :-))

[hyden] 28/8/2009 23:51

Duplicate.

[jonwig] 28/8/2009 12:39

The results are very much in line with what we expected - a good sign that they're making the right provisions for death rates, compensation claims, etc.

On the basis of their numbers, the share price is getting too close to the EEV (176p, DCF rate 6.3%) - life companies trade at a much bigger discount to their EEV ... say 40%.
But closed funds should trade narrower, and the acquisition of Modena post-year end will have improved the EEV.
I did this calculation in post #173:

Old EEV = 180p x 101.5m shs ...... = £182.7m
plus acquisition £20.1m ÷ 0.37 ... = £ 54.3m
minus cost of acquisition ........ = £ 20.1m

giving new EEV ................... = £216.9m = 214p/sh.

Which, if it's anything like accurate, gives me good enough reason to hold.

[pip_uk] 28/8/2009 10:40

Very encouraging interim statement with a positive outlook for the future.
A nice steady rise is what would be desirable.

[meadow50] 27/8/2009 15:47

Thanks Hyden.
It will be interesting to hear of their plans concerning the scandinavian insurance co they bought in the firesale from icelandic bank.Todays rise might indicate good news tomorrow