Sunday, September 25, 2005
Portfolio sees out Hurricane Rita
Well, Hurricane Rita came and went without causing any major damage to Texas and Louisiana. In anticipation of the storm share prices in the insurance sector fell last week as the market feared a Category 4 or 5 storm hitting the gulf coast.
The option to sell of course existed, but catastrophic storms of the magnitude of Katrina are the exception, not the norm, I decided the balance of probability was in favour of hanging on rather than speculating on storm damage. Chaucer and SVB were very cheap prior to the Rita warnings started to appear now I expect this discount to unwind next week and the sector to advance next week in a relief rally, especially SVB which is the cheapest share I have seen in a long time at 30p to buy.
Dana Petroleum announces interim results on Wednesday, I'm expecting the next week of September to make up for August's losses and more.
The Artful Dodger
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The option to sell of course existed, but catastrophic storms of the magnitude of Katrina are the exception, not the norm, I decided the balance of probability was in favour of hanging on rather than speculating on storm damage. Chaucer and SVB were very cheap prior to the Rita warnings started to appear now I expect this discount to unwind next week and the sector to advance next week in a relief rally, especially SVB which is the cheapest share I have seen in a long time at 30p to buy.
Dana Petroleum announces interim results on Wednesday, I'm expecting the next week of September to make up for August's losses and more.
The Artful Dodger
Wednesday, September 21, 2005
Busy September: Dana soon
Chaucer announced great results that cheered the market. Ominously for the sector however, hurricane Rita is approaching the Gulf of Mexico and has reached Category 4.
Dana Petroleum, my largest holding, reports results on 28th September, next Wednesday. I'm expecting a sharp rise in earnings and news on the drilling schedule in Mauritania.
Following my shift out of Ben Bailey and into SVB Holdings my portfolio has started to look up again since earlier this month. September may still be recorded as a down month, but we'll see.
The Artful Dodger
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Dana Petroleum, my largest holding, reports results on 28th September, next Wednesday. I'm expecting a sharp rise in earnings and news on the drilling schedule in Mauritania.
Following my shift out of Ben Bailey and into SVB Holdings my portfolio has started to look up again since earlier this month. September may still be recorded as a down month, but we'll see.
The Artful Dodger
Sunday, September 18, 2005
Chaucer next up
Sixteen percent of my portfolio is sunk into Chaucer Holdings, the Lloyds insurer. 2005 has been an eventful year for Chaucer. At the March final results announcement, Chaucer confirmed they were in takeover talks with Highway, a rival motor insurer. These talks eventually faltered, both parties threw back their rings and got on with the rest of their lives apart. In June Chaucer shares then soared to 69p on the prospect of a takeover of the company by the top-ranked player in the sector, Amlin. Only to fall back again when the talks were called off (you can see why I aren't getting carried away with the prospect of a takeover at Fayrewood). I made a calamitous mistake here in not selling Chaucer and investing elsewhere as at least two clear opportunities had presented themselves.
Then along came that dame Katrina and the rest of my life was never the same again. Well, not that bad, it's not like I'm renting a basement flat in downtown New Orleans, but the hurricane wiped another ten percent off Chaucer's value down to today's 54p to sell. Chaucer has already produced an estimate on the costs of Katrina and the fact that earnings for the first half of 2005 will exceed market expectations. Tomorrow Chaucer will report an advance on earnings per share from 2004's interim figures and an increased tangible asset value too.
Despite the imminent news from Chaucer, I expect to see more action from SVB next week. We've had a weekend for fund managers to review the interim results and I fully expect this ludicrously cheap share to advance substantially over the next few weeks. My portfolio needs it, Hurricane Katrina has bitten a large chunk out of my gains so far this year.
The Artful Dodger
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Then along came that dame Katrina and the rest of my life was never the same again. Well, not that bad, it's not like I'm renting a basement flat in downtown New Orleans, but the hurricane wiped another ten percent off Chaucer's value down to today's 54p to sell. Chaucer has already produced an estimate on the costs of Katrina and the fact that earnings for the first half of 2005 will exceed market expectations. Tomorrow Chaucer will report an advance on earnings per share from 2004's interim figures and an increased tangible asset value too.
Despite the imminent news from Chaucer, I expect to see more action from SVB next week. We've had a weekend for fund managers to review the interim results and I fully expect this ludicrously cheap share to advance substantially over the next few weeks. My portfolio needs it, Hurricane Katrina has bitten a large chunk out of my gains so far this year.
The Artful Dodger
Saturday, September 17, 2005
SVB.. yes, yes, YES!
Anybody familiar with Hollywood's most famous offerings from the last twenty years will know the cafe scene from the 1989 film When Harry Met Sally.
Know what I'm talking about?
I mean the scene where Meg Ryan's character (Sally) shocks Billy Crystal (Harry) and the panoply of extras in a New York delicatessen by, ahem.. pretending to orgasm.
I had my own When Harry Met Sally moment at 7a.m. on Friday, while tucking into two slices of toasted Sainsbury's wholemeal and reading the eagerly anticipated SVB Holdings interim results.
In my previous blog, I tried to forecast the likely outcome of these results and the market reaction:
For the shares to advance substantially, a reinstatement of the dividend would help, as would earnings per share above 3p and net tangible assets above 33p. I think all of these are very likely to be announced tomorrow.
The only matters I remain nervous about however are the size of loss provision utilisation and the latest estimate on the effects of Katrina.
The results announced surpassed my analysis of the market expectation by the greatest margin I have ever seen for one of my holdings. Usually, results are near enough to my expectations for me to remain sang-froid and poker-faced. But SVB trounced both my expectations and the market's, sparking something approaching Meg's famous performance from Dodger.
Record interim profits before tax £27.7 million (H1 2004: loss £120.1 million)
Excellent. The company is seeing growth.
Earnings per share 5.3p (H1 2004: loss 26.8p)
Fantastic, SVB has beaten market expectations for the first half of the year and the shares are clearly excruciatingly cheap at 27p to buy
Tangible net assets per share 38.2p (H1 2004: 30.9p)
The best bit of the announcement. The company has net tangible assets far in excess of its share price and operates in a sector where companies normally trade at a premium to assets.
Investment return £13.4 million (H1 2004: £4.5 million)
A huge improvement. Return on the premiums and other cash invested plays a vital part in insurer earnings and future reliability. SVB has a chequered past, which has depressed the share price for the last two years but on this evidence the company is far stronger now. The investment climate has helped, mind you.
Combined ratio 71.9% (H1 2004: 77.0%)
Superb. One final YESSSS and a big cackling laugh! This is well below the sector average and provides another reason why SVB should rise sharply from here.
Management decided it would remain prudent to not reinstate the dividend but gave some very strong reassurance on the exceptional loss provision:
In the first half of 2005 a further £12.4 million of this provision has been utilised, principally in respect of deterioration on three of the 19 large contracts. The balance of account performed in line with actuarial expectation and no material reserve strengthening was required in the period. The exceptional provision carried forward at 30 June 2005 is therefore £54.7 million.
It looks increasingly likely that SVB has got this reserving decision correct and if anything, has over-reserved. If this is the case, the excess should eventually unwind in shareholders' favour. Finally, on the effects of Hurricane Katrina:
The damage resulting from Hurricane Katrina constitutes a major event for the insurance industry. On the assumption that the insured loss is $40 billion, our current expectation is that the underwriting cost to SVB will be around £25 million net of reinsurance and reinstatement premiums. An industry loss on this scale is expected to be positive in rating terms in the next 12-18 months, and we are currently reviewing our 2006 business plan with this in mind.
SVB advanced to 29p to buy on the day of this announcement. I expect further gains and, funds permitting, will be trying to take further advantage of them.
And in case that wasn't all exciting enough for you, Chaucer announces results in Monday. Here's to another great show.
The Artful Dodger
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Know what I'm talking about?
I mean the scene where Meg Ryan's character (Sally) shocks Billy Crystal (Harry) and the panoply of extras in a New York delicatessen by, ahem.. pretending to orgasm.
I had my own When Harry Met Sally moment at 7a.m. on Friday, while tucking into two slices of toasted Sainsbury's wholemeal and reading the eagerly anticipated SVB Holdings interim results.
In my previous blog, I tried to forecast the likely outcome of these results and the market reaction:
For the shares to advance substantially, a reinstatement of the dividend would help, as would earnings per share above 3p and net tangible assets above 33p. I think all of these are very likely to be announced tomorrow.
The only matters I remain nervous about however are the size of loss provision utilisation and the latest estimate on the effects of Katrina.
The results announced surpassed my analysis of the market expectation by the greatest margin I have ever seen for one of my holdings. Usually, results are near enough to my expectations for me to remain sang-froid and poker-faced. But SVB trounced both my expectations and the market's, sparking something approaching Meg's famous performance from Dodger.
Record interim profits before tax £27.7 million (H1 2004: loss £120.1 million)
Excellent. The company is seeing growth.
Earnings per share 5.3p (H1 2004: loss 26.8p)
Fantastic, SVB has beaten market expectations for the first half of the year and the shares are clearly excruciatingly cheap at 27p to buy
Tangible net assets per share 38.2p (H1 2004: 30.9p)
The best bit of the announcement. The company has net tangible assets far in excess of its share price and operates in a sector where companies normally trade at a premium to assets.
Investment return £13.4 million (H1 2004: £4.5 million)
A huge improvement. Return on the premiums and other cash invested plays a vital part in insurer earnings and future reliability. SVB has a chequered past, which has depressed the share price for the last two years but on this evidence the company is far stronger now. The investment climate has helped, mind you.
Combined ratio 71.9% (H1 2004: 77.0%)
Superb. One final YESSSS and a big cackling laugh! This is well below the sector average and provides another reason why SVB should rise sharply from here.
Management decided it would remain prudent to not reinstate the dividend but gave some very strong reassurance on the exceptional loss provision:
In the first half of 2005 a further £12.4 million of this provision has been utilised, principally in respect of deterioration on three of the 19 large contracts. The balance of account performed in line with actuarial expectation and no material reserve strengthening was required in the period. The exceptional provision carried forward at 30 June 2005 is therefore £54.7 million.
It looks increasingly likely that SVB has got this reserving decision correct and if anything, has over-reserved. If this is the case, the excess should eventually unwind in shareholders' favour. Finally, on the effects of Hurricane Katrina:
The damage resulting from Hurricane Katrina constitutes a major event for the insurance industry. On the assumption that the insured loss is $40 billion, our current expectation is that the underwriting cost to SVB will be around £25 million net of reinsurance and reinstatement premiums. An industry loss on this scale is expected to be positive in rating terms in the next 12-18 months, and we are currently reviewing our 2006 business plan with this in mind.
SVB advanced to 29p to buy on the day of this announcement. I expect further gains and, funds permitting, will be trying to take further advantage of them.
And in case that wasn't all exciting enough for you, Chaucer announces results in Monday. Here's to another great show.
The Artful Dodger
Thursday, September 15, 2005
SVB results tomorrow
Since my sale of Ben Bailey and further purchase of SVB, the company now makes up a much larger portion of my portfolio. SVB announces interim results tomorrow. For those interested, the announcement will appear at UK-wire at 7 a.m. Less than twelve hours to go.
The key numbers for SVB will be:
The shares currently loiter at 27p to buy. At the last announcement, net tangible assets stood at 31.6 per share. As a result of the huge losses suffered in the discontinued business, SVB has for a number of years struggled to make a profit. I am confident tomorrows interims announcement will confirm SVB as a solidly performing insurer, with a combined ratio hopefully of less than 85%. For the shares to advance substantially, a reinstatement of the dividend would help, as would earnings per share above 3p and net tangible assets above 33p. I think all of these are very likely to be announced tomorrow.
The only matters I remain nervous about however are the size of loss provision utilisation and the latest estimate on the effects of Katrina.
Tomorrow's result could have a huge bearing on portfolio performance in September.
The Artful Dodger
(0) comments
The key numbers for SVB will be:
- Earnings per share
- Net tangible assets per share
- The estimate of losses suffered at the hands of hurricane Katrina
- Utilised losses from the exceptional 2004 reserve for discontinued business units
The shares currently loiter at 27p to buy. At the last announcement, net tangible assets stood at 31.6 per share. As a result of the huge losses suffered in the discontinued business, SVB has for a number of years struggled to make a profit. I am confident tomorrows interims announcement will confirm SVB as a solidly performing insurer, with a combined ratio hopefully of less than 85%. For the shares to advance substantially, a reinstatement of the dividend would help, as would earnings per share above 3p and net tangible assets above 33p. I think all of these are very likely to be announced tomorrow.
The only matters I remain nervous about however are the size of loss provision utilisation and the latest estimate on the effects of Katrina.
Tomorrow's result could have a huge bearing on portfolio performance in September.
The Artful Dodger
Wednesday, September 14, 2005
Ben Bailey: all out for 375p
For anyone that might be using Google's excellent new blog search service, I'd like to point out this is the investment record of a private investor into UK stocks, shares, equities and associated chattels.
Yesterday I took advantage of the depressed share prices in the insurance sector to buy more shares in insurer SVB. My remaining stake in housebuilder Ben Bailey was sold for 375p, a 15p per share loss since my purchase at 390p in June 2004, the proceeds and any cash balance were recycled into the increased SVB position at 26.75p.
Prospects for the housebuilding industry have progressively been turning less attractive but clear signs of trouble presented themselves in the interim results. Ben Bailey announced a 22% increase in turnover but a shocking 19% fall in profit before tax. Falling margins in a cyclical industry are the investment equivalent of blood trickling out of the edge of your mouth and form a central plank in my decision to take the loss and invest elsewhere.
So why didn't I sell Ben Bailey sooner?
Because the shares were still cheap. But a flurry of negative reports from the rest of the sector in the past week have helped convince me the market Bailey operates in has become less and less profitable. If Bailey struggled to maintain profit margins in the first six months of 2005 I can't see how it can manage to avoid anything much worse for the rest of the year.
The downside of this action is my portfolio now looks horribly concentrated. I am now left with only four positions, stakes in insurers SVB and Chaucer form approximately one third of my portfolio and Dana Petroleum and Fayrewood make up the rest. There is one more position I'll have to confess to however. Outside the portfolio (to prevent confusing the return calculation) I have opened a £20 a point short position in Countrywide, the estate agency chain. I expect another profit warning from this company before the year is out and if one is announced, I'll be crying all the way to the bank.
The Artful Dodger
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Yesterday I took advantage of the depressed share prices in the insurance sector to buy more shares in insurer SVB. My remaining stake in housebuilder Ben Bailey was sold for 375p, a 15p per share loss since my purchase at 390p in June 2004, the proceeds and any cash balance were recycled into the increased SVB position at 26.75p.
Prospects for the housebuilding industry have progressively been turning less attractive but clear signs of trouble presented themselves in the interim results. Ben Bailey announced a 22% increase in turnover but a shocking 19% fall in profit before tax. Falling margins in a cyclical industry are the investment equivalent of blood trickling out of the edge of your mouth and form a central plank in my decision to take the loss and invest elsewhere.
So why didn't I sell Ben Bailey sooner?
Because the shares were still cheap. But a flurry of negative reports from the rest of the sector in the past week have helped convince me the market Bailey operates in has become less and less profitable. If Bailey struggled to maintain profit margins in the first six months of 2005 I can't see how it can manage to avoid anything much worse for the rest of the year.
The downside of this action is my portfolio now looks horribly concentrated. I am now left with only four positions, stakes in insurers SVB and Chaucer form approximately one third of my portfolio and Dana Petroleum and Fayrewood make up the rest. There is one more position I'll have to confess to however. Outside the portfolio (to prevent confusing the return calculation) I have opened a £20 a point short position in Countrywide, the estate agency chain. I expect another profit warning from this company before the year is out and if one is announced, I'll be crying all the way to the bank.
The Artful Dodger
