måndag 27 september 2010

Analys av Cincinnati Financial corp - Försäkringsbolag med 50 år av stigande utdelning

defensiven: Säljer av Cincinnati

Allmänt om bolag
Cincinnati är ett amerikanskt försäkringsbolag. Bolaget är en Dividend aristocrat och har höjt sin utdelning kontinuerligt i 50 år. Ingen tydlig majoritetsägare.

Bloggaren dividendmonk har skrivit ett utmärkt inlägg om ett annat försäkringsbolag och jag tar mig friheten att kopiera hans verksamhetsbeskrivning: 
"The premise behind an insurance company is that they spread risk out over a wide number of people and businesses. They collect premiums (payments) from clients and in return those clients are covered in case of a serious loss. From an insurance business standpoint, it’s ideal to collect more in premiums than you pay out for losses. This is not the primary form of earnings, though. An insurance business, after collecting all of the premiums, holds a great deal of assets that, over time, are paid out for client losses. An insurance company constantly receives premiums and pays out for losses, so as long as they are prudent with their business, they get to constantly keep this large sum of stored-up assets. As any investor reading this knows, a great sum of money can be used to generate income from investments, and that’s how an insurance company really makes money."
Eller med legendaren Warren Buffetts ord: 
"Insurers receive premiums upfront and pay claims later. This collect-now, pay-later model leaves us holding large sums – money we call “float” – that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit."
Cinciattis "float" används främst till räntor, men 25% placeras i aktier. Cincinnati sysslar främst med försäkringar inom "Property & Casualty" (även om bolaget har någon procent av omsättningen i livförsäkringar). Wikipedias definition av Property insurance:  
"Property insurance provides protection against most risks to property, such as fire, theft and some weather damage. "
 Wikipedias definition av Casualty insurance: 
"An area of insurance not directly concerned with life insurance, health insurance, or property insurance. It is mainly used to describe the liability coverage of an individual or organization's for negligent acts or omissions. One of the most common kinds of casualty insurance today is automobila insurance. In its most basic form, automobile insurance provides liability coverage in the event that a driver is found "at fault" in an accident."
Geografisk spridning
Verksamt i USA.  Det största segmentet sett till omsättning är "Commercial lines property casualty insurance" och detta segment har verksamhet i 37 av USAs stater. Staten Ohio står för 16% av denna omsättning medan övriga stater har 9% eller mindre. Geografisk spridning kan nog vara ganska viktigt för ett försäkringsbolag, inte minst med tanke på naturkatastrofer.


Vi kan se att vinsterna är extremt volatila medan utdelningarna visar en betydlig mer trygg bana.

Årlig tillväxt (bedömning utifrån historik) 
Vinsterna har minskat med ca 5% per år sen 2004. Omsättningen har ökat med ca 2% per år under samma period. Eftersom vinsterna fluktuerar så kraftigt är det svårt att bedöma vad den underliggande tillväxten kan vara. Att omsättningen ökar trots finanskrisen tycker jag är ett starkt betyg

Värdering (baserat på priset 29 usd)

Direktavkastning:   5,4%
Utdelningsandel:     59%

P/E (3år): 8,5
P/E (2009): 10,9
Earnings power (6år): 12,8%


Finansiell ställning
Soliditeten är ca 33 medan räntetäckningsgraden är 14. Nyckeltalet balanslikviditet är inte applicerbart. 50 år av stigande utdelningar är ett starkt bevis för finanser i ordning. I bolagets årsredovisning står att målsättningen är att
"   minimize reliance on debt as a source of capital, maintaining the ratio of debt-to-total capital below 20 percent"
Morningstar skrev häromdagen en artikel om bolagets finansiella position: 
"Cincinnati carries an investment portfolio with above-average risk. The firm allocates around 25% of its portfolio to equities, a strategy that it believes will generate excess returns over the long term. Although this may be true, such a large allocation to a volatile asset class could put the company at greater risk than peers during weak market periods. Cincinnati more than compensates for this elevated portfolio risk by maintaining very conservative levels of leverage. Equity/assets at 35% and equity/investments at 43% are very strong. The firm's large equity base provides a substantial cushion for potential losses."

Dagens värdering är svår för mig att motstå:) Tillväxten är svårbedömd men även med en obefintlig tillväxt ser avkastningsmöjligheterna goda ut. Graham definierar sin earningspower som
"The amount a firm might be expected to earn year after year if the business conditions prevailing during the period were to continue unchanged. "
 Med dagens värdering uppgår detta nyckeltal till nästan 13%. Jag ser nedsidan som mycket begränsad med ett PB strax under 1 och uthållig direktavkastning på över 5%.

Värderingarna är låga på hela finanssektorn och i många fall är detta säkert befogat med tanke på kommande förväntade hårdare regleringar och tidigare års extrema vinster. Vad jag förstår kommer dock inte försäkringsbranschen drabbas i samma utsträckning som banker. Cincinnati ser ut som ett fint valuecase ur mitt perspektiv.

Användbara länkar för Cincinnati:
defensiven: Säljer av Cincinnati
Dividendmonk: Cincinnati Financial Corporation (CINF) Dividend Stock Analysis

9 kommentarer:

  1. Lagt till ett intressant citat från morningsstar.

  2. Kul att du har både denna och JnJ i din portfölj. Kolla gärna Medtronic och Nucor Steel i Usa om du får tid...apropå säkra utdelare med pengar i kistan.

  3. Tack för tipsen Erik, ska spana vid tillfälle:)

    Medtronic har jag på min "spanlista" sen tidigare, dividendmonk har skrivit en bra analys där. Jag har dock inte hunnit kolla in bolaget närmare.

  4. Erik: Bolagen är säkert bra och rejäla men de passar tyvärr inte fullständigt in på mina kriterier. Nucor Steel har förlustår och Medtronic har soliditet (exklusive goodwill) på ca 20. Jag vet att jag är kräsen..kanske för försiktig.

    Becton Dickinson (läkemedelsbolag) och Chubb (försäkringsbolag) är två nya kandidater jag håller på och sätter mig in i. Ser lovande ut.

  5. What are your thoughts on CINF's currently low dividend growth?

    For 2009, the company only increased its dividend from $0.39/quarter to $0.395/quarter. For 2010, the company only increased its dividend from $0.395/quarter to $0.40/quarter. That's a dividend growth rate of a little over 1%.

    When I posted my stock analysis in May, the low dividend growth was bothersome, but I figured that I'd be more interested in the stock if they raised their dividend for 2010 by a larger amount. It turns out, they have not. The yield is nice but the growth is pretty bad at the moment.

    In addition, CINF has a lot of exposure to the "rust belt" of America (and is headquartered there), an area composed of several states that have relied heavily on manufacturing and are in fairly steep decline. I've been in several of those states myself; it's not pretty.

    On the other hand, CINF's equity exposure might pay off well a few years from now, making this a good long-term pick with a high yield while one waits. CINF has been a tempting stock for me due to the yield, but I've been holding off for now.

  6. Dividendmonk:
    Good points there.

    I hardly never use divididendgrowth as a ratio. I focus on earnings- or revenuegrowth instead. I guess the original reason is that many swedish companies have very fluctuating dividends (not like in the US were it often steadily rises).

    But basicly I find it hard to judge if a "lower-then-earnings" or "higher-then-earnings" growth of dividends are good or bad. A slow dividend growth might show that the management want to be more defensive by building upp strong finances. This isnt a bad thing in my view as long as its not done every year. Meanwhile a strong dividendgrowth might mean that the managment are listening to much to the shortterm demands of shareholders and the market and are being too aggressive.

    At the same time I ofcourse like to see my dividends grow:) As long as the dividends have grown a bit over the years a long with earnings i dont really mind if they dont raise it one single year.

    Exposure to "rust belt":
    Yes ive read this in some other analysis aswel. To be honest I dont have any clue about US economic geography. I do take some consideration to cinc weak geographic exposure (perhaps I should have mentioned it in the analysis..) but as long as the price is at these levels i dont see it as worrysome.

  7. Btw: I have been looking into Chubb after your analysis and talk about share buybacks:) It looks like a good company for me, I really like its defensive qualities. Will probably buy some of its stocks next week.

    Becton Dickinson is another company which I find interesting.

  8. CINF is at a deeper value that some other insurers because they've been hit harder by the recession, and besides their equity exposure, part of the reason is their geographic location. The rust belt of states is the worst economic region in the US.

    Your point about earnings and revenue is valid. The reported earnings for the first couple of quarters are not so great, though, and CINF is likely keeping its dividend growth low so that it can preserve cash.

    In the long-run I think it will do ok.

    BDX is a good value in my opinion. The medical device industry is currently facing some pretty harsh regulatory changes, and that's driving the values down. MDT is another good one; it's on my buy list.

  9. Yes Medtronic also seems like a very nice wellrun company. Their finances are not as superstrong as other medical collegeus like J&J or Novartis though.

    I try to admit to myself my limited knowledge about US economy (even though I try to learn). This is why I demand quite a high valuediscount for companies who have all their business (like my stocks in insurance companies, banks or utilities) in the US.