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
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
Comments:
Post a Comment
