Asmus Puhl Finance Blog

Markel Corp. (NYSE:MKL) our speciality insurance company reported Q3 2019 results which appear worse than they really are:

Operating revenue declined 9.1% from $2.236 billion in Q3 2018 to $2.033 billion this quarter.

Net income to shareholders declined much more. Down 49.8% from $409.4 in Q3 2018 billion to $205.6 billion this quarter.

But these declines can be explained by a change in accounting rules: adjustments to the fair value of equity securities have to be reported and integrated into the quarterly operating results. So, if the stock market has a volatile period this will be reflected by the reported numbers.

Knowing this it is not surprising that the much more important metric in the insurance industry the book value/share ratio actually rose 9.1% yoy to $768.98 !

At Markel’s investing operations, net investment income climbed 6.7% year over year to $113.4 million

At Markel’s insurance operations the consolidated combined ratio was 94% and earned premiums increased 9.3% to $1.3 billion.

At Markel Ventures the operating revenue grew 5.7% to $496.2 million and operating income jumped 50% to $35.5 million.

All this shows clearly that Markel’s long term success story continued this quarter as in the years before.

Markel’s stock today is valued at a price/book value per share of 1.5 , which is the „normal“ valuation of Markel’s stock in the last months, not cheap and not very expensive either.

Patient investors could wait and buy after the next market correction.

Shopify Inc. (NYSE:SHOP) just reported Q3 2019 results.

But before we start to have a look at the numbers, what does this company do?

Shopify is based in Ottawa, Canada, and provides a cloud based commerce platform for merchants of all sizes. It offers a single access to build an online shop, manage a physical retail location and enables clients to manage products and inventory, process orders, payments and ship orders.

Shopify’s stock already had an enormous performance since going public in May 2015 starting trade at $28. Yesterday’s closing price was $316.76 while hitting an all time high at $406 at the end of August 2019.

A big push for the company came in September 2015 when Amazon announced it would be closing its Amazon Webstore service for merchants, and had selected Shopify as the preferred migration provider.

Other big news came in this year when Shopify announced the „Shopify Fullfillment Network“ which allows merchants to outsource their packing, shipping, and delivery to Shopify.

By this announcement it became clear that Shopify really wants to be an e-commerce one stop solution for merchants and could eventually lure away third party sellers from Amazon. In the third quarter Shopify surpassed one million merchants worldwide on their platform.

But now have a look at recent numbers:

Revenue in Q3 2019 increased 45% year over year to $390.6 million, „beating“ their own guidance for revenue between $377 million and $382 million. Clearly, the growth story is intact.

But the company posted an operating loss widening from $31.4 million in Q3 2018 to $35.7 million this quarter. This reflects the cost of international expansion and building up the fulfillment network.

For the FY 2019 Shopify is raising its revenue outlook and now expects revenue between $1.545 billion and $1.555 billion.

This means that the growth story continues at an expected revenue growth rate of not less than 40% year over year.

Shopify’s stock is valued at a price/sales ratio of 26 which certainly implies strong growth expectations for the next years. Year to date the stock is up more than 130% .

As all elements are in place for Shopify’s continued growth story we consider this stock a buy with a time horizon of not less than 5 years!

After selling all our shares of Colfax Corp. we were looking for a more promising investment and we found Shopify Inc. (NYSE:SHOP)

Shopify Inc. is based in Toronto, Canada and is an enabler of E Commerce. It started to produce software for small and medium sized enterprises to set up online shops. Then it offered payment solutions and now it starts to offer logistics in North America.

Shopify could become an independent alternative for third party sellers on the Amazon Platform. Shopify also is the No.1 ecommerce shop software solution for the new cannabis shops where selling cannabis is already legalized in the US and in Canada.

We will discuss Shopify in more detail in October!

But in these days the market offers us a good entry point to start a position in SHOP!

The stock already had a tremendous runup in the last years. But now following an investment in the logistics sector and a secondary offering of shares the stock price came back from an all time high of $ 407 to yesterday’s closing price of $ 325,85 . This is a very good entry point for long term investors. Start to build a position!

Markel (NYSE: MKL), the speciality insurer with a strong investment arm just released very good numbers for Q2 2019!

They reported operating revenues of $2.4 billion for the second quarter of 2019 compared to $2.0 billion for the second quarter of 2018.

Comprehensive income to shareholders came in at $623.3 million, up from $164.3 million in Q2 2018.

The all important book value/share climbed astounding 10.1% from $682.76 one year ago to $751.94 !

At the insurance segment the combined ratio was 95% for the second quarter of 2019 compared to 92% for the second quarter of 2018, a little higher but still very good.

At the investment segment total invested assets increased to $21.2 billion at the end of June, up from $20.1 billion at the end of Q2 2018 and equity securities were about 32% of that total.

At the Markel Ventures segment net income rose from $0.6 million a year ago to $49.8 million in Q2 2019 a meaningful contribution to the company’s results.

Obvious that management was very pleased with these results as all three operating segments made meaningful contributions.

Markel’s stock yesterday closed at $1’119.96 which means it is now valued at 1.5 book value/share.

This is fairly valued, not very cheap, but for long term investors this could be a good entry point to buy shares of a high quality insurer and investor!

Colfax Corp. (NYSE: CFX) released Q1 2019 results.

After the acquisition of DJO Global completed in February 2019 Colfax is now a company which operates in 3 segments:

Orthopedics, Fabrication Technology and Air & Gas Handling

Adjusted earnings were $ 0.53 , 10.4% higher than in the year ago quarter.

The major contribution to the 14.4% revenue growth this quarter came from the acquired orthopedics business growing 19.2% in comparison to the 1.6% growth in existing businesses.

CEO Trerotola pointed out on the conference call that „DJO launched six new products in the first quarter that will contribute to an improving growth trajectory later this year and in 2020“.

But he also pointed out that Colfax „made significant improvements in the Air & Gas Handling business that are now leading through with consistent growth in orders and margins and the business is expected to return to top-line growth in the second half.“

As Colfax intends to sell this business this certainly helps to get a better price.

The balance sheet quality deteriorated. Long-term debt balance increased substantially to $4,037.1 million from $1,192.4 million in the previous quarter as Colfax already bought DJO Global but did not sell yet the Air&Gas Handling business.

But this can be expected within the next several months and the balance sheet will improve.

This means for investors that the transformation process of Colfax will most likely continue for a couple of quarters more.

Will management be able to transform DJO Global into a growth story?

Will fabrication technology continue to be a slow grower?

For 2019 Colfax anticipates adjusted earnings of $ 2.55-$2.65 .

At today’s price of $26.77 this translates into a p/e ratio of just 10 !

This looks cheap but Colfax still isn’t the growth story it once has been.

Even if this 1^st quarter has been solid, investors should wait until more signs of improvement emerge. Until then Colfax remains a hold!

Markel (NYSE:MKL) the speciality insurer released very good results for Q1 2019.

This is encouraging after the hefty swings of the share price from an all time high of $ 1’217.82 in August 2018 down to $ 957 in January 2019 and now up again to $ 1061,05

Since the beginning of 2018 incertainty came from the ongoing governmental inquiries into the loss reserves of the „CatCo business“ which today seem to be behind them.

Book value/share rose from $ 671.05 in the prior year quarter to $ 706.98 , an increase of 5.4% and the combined ratio was 95% compared to 90% in the 1^st quarter 2018.

Operating revenue growth of 56.9% yoy from $1.575 billion to $ 2.472 billion is certainly an impressing number but can largely be explained by accounting rules:

Markel every quarter has to adjust the fair value of their equity securities to market prices. As the equity market recovered in Q1 2019 $611.5 million increase in operating revenue can be explained by this increase.

At Markel’s investment operations net investment income increased 5.7% year over year, to $114.2 million.

At Markel Ventures operating revenue grew 16.1% to $455 billion and operating income grew 25.8% to $29.9 million

Markel is cautiously optimistic about the remainder of this year!

At a price/book value per share ratio of 1.5 Markel’stock remains a buy!

Colfax Corp. (NYSW:CFX) the industrial gas and fluid handling company made a surprise move:

They announced the acquisition of the orthopedic devices, software and services company DJO Global!

.. oops… a total different activity and the price to pay in cash to the seller Blackstone is $ 3.15billion! In order to finance this acquisition Colfax intents to sell its entire Air and Gas Handling Division which at the end means a complete change of their business model.

Investors are nervous and the stock fell 16% after the announcement last week.

Will this all work and create shareholder value over time?

For the moment impossible to tell and therefore the stock remains a „hold“ but this change of activity is not just a „crazy idea“: the Rales brothers who founded Colfax modelled the company after Danaher Corp. (NYSE:DHR) which works in the orthopedic sector for years with success. Also Colfax CEO Trerotola came to Colfax from Danaher.

So perhaps with their experience in the medical device sector it could work over time!

Markel Corp. our speciality insurer reported good Q3 2018 results!

Book value per share was $704.70 ,3% higher than the $683.55 reported december 31, 2017

The combined ratio was 99% for the third quarter of 2018 compared to 134% for the third quarter of 2017 and included $75.7 million, or six points of underwriting losses from Hurricane Florence and Typhoon Jebi.

Comprehensive income made a big jump from a comprehensive loss of $19.9 million in Q3 2017 to $315.1 million this quarter.

This was largely due to the strong performance of the equity portfolio while the fixed income portfolio was unfavorably impacted by rising interest rates.

Markel Ventures also released good numbers: Operating income more than tripled, to $23.6 million and in october they acquired 90% of fashion-handbag specialist Brahmin Leather Works for $173.3 million.

Another acquisition has already been announced in August: Nephila Holdings Limited, a Bermuda-based investment manager with $12 billion in assets under management, for $975 million in cash

These were once again solid numbers and Markel continues to grow by acquisitions.

The book value/share ratio stands at 1.5 which is not too expensive for a high quality company like Markel.

This stock remains a „buy“!

Colfax Corp. (NYSE: CFX) released Q3 2018 results yesterday!

Adjusted net income came in at $ 0.54 per share, surpassing analysts expectations and better than the $ 0.42 one year ago.

Third quarter 2018 net sales were $875 million, 4% higher than the comparable period of 2017.

Excluding acquisitions and foreign currency translation effects Fabrication Technology segment sales grew 10%, and Air & Gas Handling segment sales decreased 12%.

Surpringly for the current macro picture Colfax is rather optmistic about Q4 and year end performance:

Colfax revised its adjusted earnings per share outlook for the year from $2.15-$2.30 to $2.20-$2.30 and expects to end the year with adjusted earnings per share growth of 26% or more as CEO Trerotola explained on the conference call:

“We expect a strong performance in the fourth quarter, led by continued Fabrication Technology business growth and sequential margin improvement, expanded Air & Gas Handling margins, and further benefits from our restructuring actions.”

The stock market in contrast is not so positive. The stock price slides slightly 0.8% today in an overall negative market after already having lost 30% year to date.

For investors this stock should be a „hold“.

It will be seen whether Colfax Corp. can improve its mediocre business performance of the last several years as a basically classic industrial company which the stock price always reflected.

The balance sheet and the cash flow generation are still solid but investors need to watch whether the Colfax Business System is still working especially when it comes to growth by meaningfull acquisitions.

Colfax Corp. (NYSE:CFX) reported better than expected Q2 2018 results!

The company reported net income from continuing operations per diluted share of $0.52 versus $0.30 in the prior year quarter and increased full year adjusted net income per share outlook from $2.05-$2.20 to $2.15-$2.30

Matt Trerotola, Colfax CEO said, “recent acquisitions are performing as expected, the Fabrication Technology business posted significant global growth, and Air & Gas Handling operating margins expanded sequentially from the first quarter as expected.”

“Air & Gas Handling industrial segment orders grew organically 24% year over year in the quarter, reflecting the successful long-term diversification of the business into higher-growth, less cyclical end markets.”

It seems that finally after several years Colfax industrial end markets are improving. The company has a strong balance sheet and is able to execute its acquisition strategy in order to complement their existing businesses.

Let’s wait and see where Colfax will be positioned at the end of this year 2018! Shareholders should be cautious after the negative experience of the last painful years but definitely there are signs of improvement! Until then Colfax remains a “hold”!