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Lancashire Could Continue To Yield 8%, Unfortunately
- Following the special dividend payment, Lancashire is down to prices last seen in 2010.
- However, I continue to keep my neutral, slightly bearish stance on the company.
- The high payouts are a double-edged sword, resulting in high income, high taxes and low growth.
- Taking into account the outlook for insurance pricing, I believe that Lancashire will continue to pay out high dividends.
- In addition, investors should not expect much of capital appreciation.
- Lancashire is down 25% YTD on concerns about market pricing, M&A dilution and the rapid departure of the founding CEO.
- Reinsurance and specialty insurance pricing remains under severe pressure due to excess capital.
- Lancashire purchased more protection to reduce its net risk profile and may offer an attractive short term trade post hurricane season due to the prospect of a generous special dividend.
Lancashire - Shares Down 15% Despite Favorable Q1 2014 Results
- Q1 2014 results point to significant undervaluation of Lancashire, which currently trades at PE=6.5 and 1.4xBV.
- Investors have recently sold down on concerns about unexpected CEO resignation, although business appears to be in a better position than before.
- Change of CEO should have minimal effect on daily operations as well as on capital allocation decision within the company.
- Special dividend announcement is expected in H2 2014, which will likely boost the share price.
Lancashire - Money Making Machine With At Least 45% Upside
- Lancashire Holdings is a London based niche insurance/reinsurance company with a track record of spectacular financial performance: average ROE of 19%, combined ratio of 60% and 10% dividend.
- The company trades at PE=10 (or forward PE=6.9), and the market currently attaches no value to its newly started/acquired businesses, which will increase 2014 earnings by 45%.
- Recent decrease in share price (22% during the last year) gives a asymmetric buying opportunity with at least 45% upside within one year.
Is The 8% Yield Of Lancashire Holdings Sustainable?
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