Archive for August, 2014

Markel – steady as it goes

August 11th, 2014 Comments off

Markel Corporation (NYSE: MKL) released its Q2 2014 results.

The conference call transcript as always is made available by Seeking Alpha.

The insurance group reported book value per common share outstanding of $511.28 at June 30, 2014, up 7% from $477.16 at December 31, 2013.

The combined ratio was 101% for the second quarter of 2014 compared to 103% for the second quarter of 2013. The combined ratio was 98% for both the six months ended June 30, 2014 and 2013.

Markel made very good progress integrating the Alterra and the Hagerty Insurance acquisitions which explains that total operating revenues grew 35% to $2.5 billion in 2014 compared to $1.9 billion in the first half of 2013 and earned premiums increased 42% to $1.9 billion.

Excellent news came from their investment activity:

During the first half of 2014, the total return from the portfolio was 4.6% with equities up 8.6% and fixed income up 3.5% Recasting of the investment portfolio they picked up in the Alterra acquisition is largely complete. They have reset the fixed income portfolio, largely eliminated the high cost alternative investment activities and continued the process of building up the equity investments. Equities now represent 51% of shareholders’ equity up from 48% at year end and this percentage will continue to climb over the next years.

Perhaps the most interesting comments were made on „Markel Ventures“:

The contribution from this segment is still rather poor.

During the first six months of 2014, revenues from Markel Ventures were $355 million compared to $314 million a year ago. Net income to shareholders from Markel Ventures was just over $5 million in 2014 compared to $10.5 million for the same period in 2013.

As chief investment officer Thomas Gayner explains the manufacturing operations within the Ventures Group are lumpy businesses where big orders come irregularly and make a big difference on the bottom-line

Therefore they set high hopes into the Cottrell acquistion, the leading manufacturer of car hauling in the US.

The initial consideration for Cottrell is $130 million and this is the largest transaction yet for Markel Ventures.

With this addition, revenues of the Markel Ventures companies will now round to $1 billion, about 20% of Markels total revenues and they expect double-digit EBITDA profitability.

The market reacted negatively to these results and the stock fell to $ 632. But we are convinced that patient investors will be rewarded over the long term.

Fortunately Markel does not only depend of their insurance results. The investment portfolio especially the equity part is very promising and key to further development will be „Markel Ventures“ ability to acquire companies like Cottrell! Markel’s stock trades at a price/book ratio of only 1.2 ! That’s not expensive at all – Markel remains a buy!

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