Markel needs to improve Markel Ventures!
Markel Corp. (NYSE: MKL) released its Q3 2014 results and the 10Q.
As usual the transcript of the conference call has been published by Seeking Alpha.
So what’s the picture?
Book value per share, perhaps the single most important metric in the insurance business is up 8% year to date at $514.06
All three insurance segments — U.S., international, and reinsurance — made an underwriting profit with an overall combined ratio of 97% and they continued to align the legacy Alterra reserves with the Markel’s reserving philosophies.
Equity investments returned 7.3% and fixed income 4.5%, for an average return of 5.2% over the 9 months period which is pretty good.
During the quarter, Markel added $300 million to its equity portfolio, which now stands at 52% of shareholder equity, up from 48% at the end of 2013.
Markel will gradually increase the equity percentage of their holdings over the next months which means better investment returns over the long term but at the same time also more volatility.
But what a contrast to the results of Markel Ventures:
This non-insurance division had revenues of $595 million in the nine month period, up from $486 million in the corresponding period last year but net earnings were a meager 2.7%
Management emphasizes that the more important metrix to watch is EBITDA but as we all know this backs out depreciation which is a real cost!
Markel Ventures purchased Cottrell Industries, the leading manufacturer of car holding trailers and equipment during the quarter.
As CIO Thomas Gayner pointed out we’ll see more from Cottrell as well as the rest of the Markel Ventures companies in the fourth quarter.
We certainly have to watch closely within three months!
Markel Ventures is designed after Berkshire Hathaway but in order to match this success story or even get up to the profitability of the investments within the Markel insurance divisions they need to improve dramatically!
At book value/share of $514.06 and at yesterday’s closing price of $701.89 Markel is valued at a price/book ratio of 1.4
As a price/book of 1.5 times is surely justified for this high quality company, the share price will eventually rise to $771 over the next months.
Although not a discount at today’s price Markel certainly remains a buy as a long term investment!