Asmus Puhl Finance Blog

The 2012 results of Colfax Corp. (NYSE.CFX) are a mixed picture:

Everything the company can influence they did well:

restructuring, streamlining and integrating the acquired companies.

As CEO Simms explains: “We were extremely pleased with the performance of our Soldexa acquisition in November and December, which contributed over $3 million in operating profit before transaction costs and acquisition accounting items totaling $5 million.”

And he continues: “our working capital performance in the fourth quarter was outstanding. We generated $163 million in operating cash flow in the quarter. Inventory balances were reduced by $56 million, accounts payable increased by $56 million and a significant improvement in construction contract funding was achieved. This accomplishment was broad-based across all 3 businesses and shows what focused application of the CBS tools can deliver.”

But the economic environment remained difficult in 2012:

Most of the ESAB regions continued to experience relatively soft demand consistent with the third quarter due to the weakening of the global economic environment. As discussed on last quarter’s call, we expect a slight decline in operating margins at ESAB as we planned a number of factory shutdowns for December.

But there are also positive signs:

Colfax’ backlog was a strong $1.4 billion at year end. Their book-to-bill ratio for the fourth quarter at 1.01:1 was stronger than the typical fourth quarter.

They saw strong bookings in the gas-handling business, unfortunateley offset by continued weakness in fluid-handling.

So what do these results mean for investors?

The management team is working hard to improve the group’s effectiveness implementing their „Colfax Business System (CBS)” and they are very successful at doing it!

We can expect improving margins and strong cash flow numbers over time.

They are well positioned in a number of industrial markets and when they economy improves they will profit immediately!

Colfax share at yesterday’s closing of $ 42.25 is valued at a p/e of 23 as analysts expect EPS of $ 1.82  in FY 2013.

To me this seems to be a „buy” on weaknesses!

Seeking Alpha published the transcript of today’s Conference Call to discuss their FY 2012 results!

Colfax Corp. (NYSE:CFX) has just released its FY 2012 financial results!

They beat the consensus estimate by $ 0.03 and missed slightly on the revenue side!

Have a look!

After having read the Conference Call transcript I just want to highlight 3 points here:

1. – Markel Ventures

Markel’s total year-to-date operating revenues grew 14% to $3 billion in 2012 from $2.6 billion in 2011. The increase is due to 9% increase in revenues from their insurance operations and a remarkable 54% increase in revenue from the non-insurance operations, which they call Markel Ventures.

In 2012, year-to-date revenue for Markel Ventures were $489 million compared to $318 million in 2011. Year-to-date net income for shareholders from Markel Ventures was $13.5 million in 2012 as compared to $7.7 million in 2011

These strong numbers reflect the rapidly growing importance of their non-insurance operations „Markel Ventures”!

… Watch out: Mini-Berkshire at work!

2. – The Alterra deal:

They just gave some information about the next steps:

The shareholders’ votes are scheduled for February 26th.

They are in the process of obtaining regulatory approvals and they believe that this transaction could close as early as April 2013.

3. – Markel’s long term strategy once again plays out in their investment results:

As in 2012 „the total investment return of the portfolio was 9% whereas 19.6% the equity investment and 5.1% on their fixed income portfolio”, this is only an example of their long term strategy:

Over the last 23 years, they have earned nearly 200 basis points of excess return per year compared to the S&P 500 Index on the equity investments and they earned more than 350 basis points of excess return from their equities compared to the Barclay’s Aggregate Fixed Income Index.

Markel’s share price yesterday closed at $ 488.69 which translates into a price/book ratio of just 1.2 !

You should consider to join insiders buying shares at this rather cheap price!

The transcript of Markel Corp. FY 2012 Conference Call you can find on Seeking Alpha.

Have a look!

Markel Corporation (NYSE:MKL) today reported its FY 2012 results!

Diluted net income per share was $25.89 in 2012 compared to $14.60 in 2011.

Despite hurricane Sandy which cost $107.4 million or five points of underwriting loss in the 4^th quarter, the 2012 combined ratio improved to 97% compared to 102% in 2011.

Book value per common share outstanding , the very important metric in the insurance industry, increased 15% to $403.85 up from $352.10 at the end of 2011.

Let’s wait for the conference call to possibly get some news about the “Alterra deal”!

Markel’s stock (NYSE: MKL) is already rebouncing after its negative reaction to the announced Markel-Alterra merger!

When Markel announced its merger plans late December (see post below including a link to the press release) the market reaction was surprisingly negative and the 17% year-to-date performance of Markel’s stock has been erased in a few days down to a mere 2012 performance of 4.5%

But have a look at the stock in January 2013: It is already gaining lost ground and finished at $463.03 last Friday, already up 6.8% this year.

Certainly the merger plan is not without risks, but Markel pays only a slight premium to Alterra’s book value and in addition they pay the purchase price with their own cheap stock.

We think there is reason for optimism:

Both insurance companies are working with consistent underwriting profits, synergies of the merger should be meaningful and CIO Thomas Gayner will invest Alterra’s cash with better returns then they did until now.

Markel’s stock is selling for a p/book value of 1.2 – no question, this is a „buy”!

Markel Corp. (NYSE: MKL) announced today that it acquires Alterra Capital Holdings Limited (Nasdaq: ALTE) for $31 per share in stock and cash.

Alterra is a speciality and reinsurance company based in Hamilton Bermuda.

Markel is able to acquire this company which they consider highly complementary to Markel only at a very slight premium to its book value!

This certainly means a big step forward for Markel: with its market cap of $4.68 bil it is able to aquire a rival company with a market cap  of $2.22 bil!

They will held a Conference Call later in the day!

How performed the 2 stocks this blog follows regularly this year?

Colfax Corp. stock (NYSE:CFX) is up 37% as we are less than 2 weeks away from year end and is by far outperforming the 15% gain of the S&P 500 Index as of this writing.

Markel Corp. stock (NYSE:MKL) is up 17% year-to-date and is slightly outperforming the S&P 500 index, too.

In the case of Colfax it’s particularly impressive how patient buy and hold investing can be rewarding over the years:

This blog follows Colfax since May 2009 when the stock stood at $7.27.

This translates into a performance of 436% until now! Not bad for 3 1/2 years isn’t it? Capitalism at work!

To all our readers a Merry Christmas and a happy new year 2013! Stay the course!

The transcript of the Colfax Corp. (NYSE: CFX) annual analyst meeting reveils some interesting insights how this conglomerate works and thinks and therefore it’s a must read for every shareholder!

Once a year management takes a lot of time to explain how every sector of the group works and operates within its specific market, how they will improve overall efficiency applying their „CBS – Colfax Business System” and how they will grow over the long term.

As CEO Steven E. Simms puts it: „We believe we can become a premier global industrial enterprise. To us, that means outperforming GDP growth by 1 or 2 points. It means delivering operating income margins that are in the mid-teens, and certainly delivering free cash flow that is in excess of net income.”

And he adds: „We’ve got an outstanding portfolio where we’re the #1 manufacturer in most of the markets that we compete in. We’ve got a great geographic mix where nearly over 50% of our sales are driven by those markets, which are growing in terms of GDP in the mid to high single digits.”

Simms also confirmed that the Charter Acquisition was a tremendous opportunity for Colfax and that they will aggressively go after another strategic platform to add to the 2 that they have today.

Colfax share price is up 36% year to date clearly outperforming the S&P 500 which is up 12%.

So if everything goes as planned we are only at the beginning of a long term growth story!

Cheers!