Tuesday, September 21, 2004
Judgement of September. Chapter II: Chaucer
Monday's results from Chaucer Holdings showed progress on three key equity valuation metrics: earnings per share, dividend per share and net tangible asset value.
The shares advanced on Monday only to give back their gains during today's session. Chaucer is the racehorse that hasn't put a foot wrong over the course but has so far failed to reward it's owner with prize money. The dividend yield and advance from the 42.88p purchase have paid the stable bill but as my calculated fair value rises so does the frustration - I'm tempted to take a knife to my portfolio and make a gelding of this underperforming nag.
The company announced record results for the half-year. Operating profit increased from £15.0m to £19.8m. Earnings per share was buoyed to 5.3p from 5.0p and net tangible asset value put in a 21% improvement reaching 41.9p per share. All assisted by Chaucer's canny underwriting strategy as the combined ratio (a measure of payouts to premiums received) fell to 82.8% from 89.6%.
Commeting on trading, Ewen Gilmour, Chief Executive, said:
Underwriting conditions remain fundamentally sound, with the market motivated by the importance of maintaining discipline. The current hurricane season, though severe, provides opportunities for a group like ours.
but the Atlantic weather fronts have put the wind up Chaucer management:
Hurricanes Charley and Frances have provided a salient reminder of the continued importance of our core business disciplines - risk selection, pricing and management. The Chaucer Group's total estimated net exposure to these two events is between £8m and £12m and remains within budget for such events. Hurricane Ivan is clearly a substantial catastrophe. Whilst it is too early to make accurate estimates, Chaucer is confident that the loss remains within its reinsurance programme.
The 2004 hurricane season has brought the insurance industry's first major disaster since 2001. The events in the Atlantic will hit the company's combined ratio through higher payouts than previous but a reassessment of the risks present should be positive news for premium rates. The market currently prices Chaucer so cheaply because consensus is that premium rates (and hence income) have peaked and the industry is sailing towards stormy waters. I shall keep faith in management to inform me of the business climate - Chaucer will avoid any portfolio pruning as long as the shares trade below 65p.
Ben Bailey, down 3.5% today looks unlikely to inspire the portfolio to the gains it enjoyed in 2003. This year's biggest earner, Dana Petroleum, announces interim results on September 30th. 2004 has seen Dana rise from 250p to 352p. Dana was no cheaper when I bought then Chaucer is today. Dana's rise has knocked Chaucer into third place in my portfolio, I'm hoping this embarassment will spur Chaucer on. Just over three months of 2004 remain, there's a lot of this race still to be run.
The Artful Dodger
The shares advanced on Monday only to give back their gains during today's session. Chaucer is the racehorse that hasn't put a foot wrong over the course but has so far failed to reward it's owner with prize money. The dividend yield and advance from the 42.88p purchase have paid the stable bill but as my calculated fair value rises so does the frustration - I'm tempted to take a knife to my portfolio and make a gelding of this underperforming nag.
The company announced record results for the half-year. Operating profit increased from £15.0m to £19.8m. Earnings per share was buoyed to 5.3p from 5.0p and net tangible asset value put in a 21% improvement reaching 41.9p per share. All assisted by Chaucer's canny underwriting strategy as the combined ratio (a measure of payouts to premiums received) fell to 82.8% from 89.6%.
Commeting on trading, Ewen Gilmour, Chief Executive, said:
Underwriting conditions remain fundamentally sound, with the market motivated by the importance of maintaining discipline. The current hurricane season, though severe, provides opportunities for a group like ours.
but the Atlantic weather fronts have put the wind up Chaucer management:
Hurricanes Charley and Frances have provided a salient reminder of the continued importance of our core business disciplines - risk selection, pricing and management. The Chaucer Group's total estimated net exposure to these two events is between £8m and £12m and remains within budget for such events. Hurricane Ivan is clearly a substantial catastrophe. Whilst it is too early to make accurate estimates, Chaucer is confident that the loss remains within its reinsurance programme.
The 2004 hurricane season has brought the insurance industry's first major disaster since 2001. The events in the Atlantic will hit the company's combined ratio through higher payouts than previous but a reassessment of the risks present should be positive news for premium rates. The market currently prices Chaucer so cheaply because consensus is that premium rates (and hence income) have peaked and the industry is sailing towards stormy waters. I shall keep faith in management to inform me of the business climate - Chaucer will avoid any portfolio pruning as long as the shares trade below 65p.
Ben Bailey, down 3.5% today looks unlikely to inspire the portfolio to the gains it enjoyed in 2003. This year's biggest earner, Dana Petroleum, announces interim results on September 30th. 2004 has seen Dana rise from 250p to 352p. Dana was no cheaper when I bought then Chaucer is today. Dana's rise has knocked Chaucer into third place in my portfolio, I'm hoping this embarassment will spur Chaucer on. Just over three months of 2004 remain, there's a lot of this race still to be run.
The Artful Dodger
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