undervalued insurance stock, page-3

Hi Stump!

Yes, CIX have already admitted that their fanking credits (carried forward from the old REAC days) are substantial. Dividends need to be paid from current profits (per Corps Act) so its just a matter of time before they pay them, fully franked. The only question is whether they will elect to wait until they have recouped their "startup costs", or will launch into FF divs at the end of this year.

They gave a guidance some time ago about the value of the AUGIL business "in their hands" - I think a figure of around $7 mill was mentioned (this makes sense when you think of the purchase price of AUGIL and the price to earnings ratios at that time). They suffered some equity-related losses in Q1 (per their update on that matter), however their longer duration investments will have made up some, if not all of these losses during Q2 and Q3. I am guessing (total guess here) that we will be hearing about profits in the vicinity of $6 million come Dec-31.

You also gotta remember that their has been far fewer catastrophes this year (large claim events) and CIX took a hit on their accounts at the end of 2007 for the restructuring of their reinsurance programme. Judging by their half-yearly loss ratios they are outperforming the market on their insurance book, and will therefore be able to write back (to profits) some of their actuarial assessments at end of year. This could actually bring that $6 million figure back towards the initial guidance (which is why they have remained so silent on the matter: no need to disclose if all is sweet).

At a market cap of around $81 million, a $6 - $7 million profit (no tax remember - due to carried forward tax credits as well) provides a return of around 7.5% - 8.5%. Whilst they have always stated that they were targeting a return of around 15% (I think that was the number) I think they may well pay a divident at the end of 2008, even a partial one, if this number comes in. At worst they will be in a position to reduce their debt (AUGIL related) and improve their debt-equity ratios - which, in itself, puts them in good stead for a re-rating (i.e. capital price increase).

Doesn't matter which way you look at it: imo anything under 45 cents is a giveaway price for CIX.

Regards
Kit