Tuesday, August 16, 2005
SVB hits magical 30% mark
I've written previously on margin of safety and how I've disciplined myself to never accept anything less than a 30% discount to fair value on purchasing shares. There's nothing mathematically optimal about that number, I've no way of showing it generates superior portfolio returns than other numbers such as 25% or 35%. After all, opportunities to buy at a 25% discount could be expected to present themselves more frequently than a share trading at 35% off but are more likely to result in a loss and would return a lower expected gain.
Well, today at 32.5p, SVB has comfortably broken through my targeted 30% return level. A very satisfying advance from my purchase at 24.12p on April 12th and one of the most consistent rises a share has ever delivered me. At the time of purchase I wrote:
The investment case revolves around the new management having got this reserving decision right and developing a profitable business from what remains. If SVB can manage this I'd expect the share price to recover to the level of declared tangible asset value at 31.6p or higher and I'd take my exit.
So should I sell? I think news (or lack of it) since my purchase has strengthened the case to hold until September's expected interim results. There are two main reasons for this. The first concerns the reserving decision made in September 2004. Twelve months later, SVB has not had to add to to this provision - it is beginning to look increasingly as though they have got this right and things won't be getting any worse. The second factor is the benign Atlantic hurricane season. Halfway through the hurricane season and no major storms have hit the East coast of the USA. This time of the year is normally very expensive for insurers as they have to settle claims for billions of pounds worth of damage. After four hurricanes in 2004 and a major typhoon in Japan in 2004, SVB was forced to pay out £10m. If the hurricane season continues to be the non-event it has been thus far, insurer profitability will improve dramatically.
I expect interims around the third week of September. With just over a month to go and the forecast in Florida still fine, SVB stock could continue it's gains north toward 40p.
The Artful Dodger
Well, today at 32.5p, SVB has comfortably broken through my targeted 30% return level. A very satisfying advance from my purchase at 24.12p on April 12th and one of the most consistent rises a share has ever delivered me. At the time of purchase I wrote:
The investment case revolves around the new management having got this reserving decision right and developing a profitable business from what remains. If SVB can manage this I'd expect the share price to recover to the level of declared tangible asset value at 31.6p or higher and I'd take my exit.
So should I sell? I think news (or lack of it) since my purchase has strengthened the case to hold until September's expected interim results. There are two main reasons for this. The first concerns the reserving decision made in September 2004. Twelve months later, SVB has not had to add to to this provision - it is beginning to look increasingly as though they have got this right and things won't be getting any worse. The second factor is the benign Atlantic hurricane season. Halfway through the hurricane season and no major storms have hit the East coast of the USA. This time of the year is normally very expensive for insurers as they have to settle claims for billions of pounds worth of damage. After four hurricanes in 2004 and a major typhoon in Japan in 2004, SVB was forced to pay out £10m. If the hurricane season continues to be the non-event it has been thus far, insurer profitability will improve dramatically.
I expect interims around the third week of September. With just over a month to go and the forecast in Florida still fine, SVB stock could continue it's gains north toward 40p.
The Artful Dodger
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