Author Topic: ELF.TO - E-L Financial Corp. Ltd.  (Read 68003 times)

SafetyinNumbers

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Re: ELF.TO - E-L Financial Corp. Ltd.
« Reply #140 on: October 22, 2019, 03:08:57 PM »
if elf bought evt, would tax basis go to NAV paid by ELF or would ELF still be on the hook for the deferred taxes of EVT?  do any of the knowledgeable have a clue?

I think ELF would pay NAV or close to it for the remaining EVT the Jackmans don't have, which means the value of the assets less deferred tax. The deferred tax would remain a liability for ELF. EVT would still exist, it would just be private and would continue to carry the deferred tax liability.

They could also liquidate that portfolio (hedged as soon as they announce the acquisition) if they don't want any additional leverage. They would have to pay the tax but they should be indifferent.


SafetyinNumbers

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Re: ELF.TO - E-L Financial Corp. Ltd.
« Reply #141 on: October 22, 2019, 03:16:16 PM »
Has anyone ever asked them if they would have UNC bid for EVT?

I haven't really thought it through but presumably an exchange ratio based on the respective NAVs would work.

They would gain efficiencies for things like listing costs and it could be structured tax free.

That would dramatically increase ELF's share of the ELF shares owned by EVT. I suppose the risk is that ELF shares would jump a lot on news because it would seem like ELF is trying to create shareholder value. No one thinks they have any interest in doing that right now.

spartan

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Re: ELF.TO - E-L Financial Corp. Ltd.
« Reply #142 on: November 05, 2019, 10:50:29 AM »
I've taken a closer look at Empire Life's numbers - see attached spreadsheet (two tabs) for numbers going back to 2001.

Here is a summary for those interested, along with my key takeaways:

Four business segments:
- Wealth Management
- Employee Benefits
- Individual Insurance
- Capital & Surplus

Four revenue streams:
- Net premiums
- Investment income
- Fee income
- Net gains/losses from investments

Business changed after 2009:
- Investment income began to grow at a higher CAGR driven by individual insurance segment. Since 2009, CAGR has been around 6%. Although wealth management investment income has dropped since then, it is compensated by insurance and capital segments.
- Fee income continues to grow substantially and driven by wealth management segment. Since 2003, when segmented information began to be presented, this has grown at 13% CAGR.
- Excluding net gains/losses from investments, revenue growth has been stagnant. Pre-GFC, revenue was growing at around 10% CAGR. Post-GFC, revenue is only growing at 3% CAGR per year.
- Although revenue is stagnant, it is still growing and buttressed by fee and investment income. Most importantly, Empire’s growth seems to be dropping directly to bottom line. Net income has been growing at a blistering pace – close to 25% CAGR since 2010.
- This is a hidden growth business.


- Empire Life is a significant contributor to ELF’s bottom line. If revenue continues to grow at a reasonable rate, and bottom line continues to grow at a high rate, Empire Life should be worth roughly $750 per share in the next year or two (entire value of ELF share price today). It could be worth even more than that to the Big 3 insurance companies; synergies could be quite substantial.

[($200 Million x 15 Multiple) / 4 Million Shares Outstanding] = $750

- Net assets available to common shareholders have been growing at a 12% CAGR since 2013, when numbers began to be segmented. Applying varying multiples (1.1x – 1.7x) implies an intrinsic value per share of $440 – $675. At first glance, this seems too simplistic and undervalues the true growth potential of Empire Life. However, it adds another layer of comfort. As a reminder, the Big 3 insurance companies all trade at similar multiples:
   - Sun Life = 1.65x
   - Manulife = 1.1x
   - Great-West Life = 1.55x
« Last Edit: November 05, 2019, 11:12:56 AM by spartan »

BroKon

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Re: ELF.TO - E-L Financial Corp. Ltd.
« Reply #143 on: November 05, 2019, 11:03:40 PM »
Thanks for your analysis spartan.
Let me preface my comments with firstly, I think ELF is cheap and I own it, and secondly, that most analysis of Empire Life that I have seen agrees with spartan’s conclusion. However, I just cannot seem to get to there.
I have looked at Empire Life two ways:
•   Using Damoradan base case numbers of US life Insurance companies, where the average Life Insurance company trades on price to book of 0.82 and has a ROE of 12% - which would extrapolate Empire Life to somewhere around 0.75 price to book.
•   Using Sources of Earnings from their annual report and a multiple of 13 (although I do take spartan’s point around growth in fee income, so maybe you could put a higher multiple, but I just took the average of the three life companies he named) which gives a p/b of 1.04
At around 30% of Net Equity Value, none of the above significantly changes how cheap ELF is, and as I said most analysis I read gives it a minimum valuation of 1.4x, but I thought it was worth giving a counterpoint, to add to the discussion on a company that even the chairman believes cheap by buying…..wait for it……another 100 shares the other day.

SafetyinNumbers

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Re: ELF.TO - E-L Financial Corp. Ltd.
« Reply #144 on: November 06, 2019, 02:04:15 PM »
I agree with both of you. I do think Empire Life in a sale scenario would be worth close to where Standard Life sold for at 1.9x book but it likely won't happen until we have much higher interest rates.

The speculation that estate planning is the reason they aren't buying more stock as a family or as a company is the most rational I have heard.


mranski

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Re: ELF.TO - E-L Financial Corp. Ltd.
« Reply #145 on: November 06, 2019, 04:01:57 PM »
Ive never been able to understand their holding of Algoma Central, it seems like such a mediocre long term investment, company, and industry. I guess it is small enough overall to not matter enough.

SafetyinNumbers

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Re: ELF.TO - E-L Financial Corp. Ltd.
« Reply #146 on: November 06, 2019, 07:26:03 PM »
Ive never been able to understand their holding of Algoma Central, it seems like such a mediocre long term investment, company, and industry. I guess it is small enough overall to not matter enough.

It's been about a 10 bagger for them so far plus dividends based on EVT's financials. I'm not sure how long they have owned it though I saw it was about a 3 bagger on EVT's financials at the end of 2002. ALC has returned about 9%/yr since then which has beat the S&P/TSX which has had a return of about 5.5%/yr.


no_free_lunch

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Re: ELF.TO - E-L Financial Corp. Ltd.
« Reply #147 on: November 06, 2019, 07:55:32 PM »
I own elf and continue to hold. I think it will be fine. They are growing book value slowly and the discount is based on interest rates. It's frustrating and they are missing an opportunity but the long term success isn't impeded by the low share price.

mranski

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Re: ELF.TO - E-L Financial Corp. Ltd.
« Reply #148 on: November 06, 2019, 08:23:53 PM »
Thanks, Safety, the long term is way better than I thought. I was looking at the 10 year.

spartan

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Re: ELF.TO - E-L Financial Corp. Ltd.
« Reply #149 on: November 07, 2019, 04:54:57 AM »
Has anyone dabbled in their preferreds? Hal has increased his holdings of Series 2 as of late (around $2.5 Million purchased since August). They currently trade at around $22 - yielding 5.4%. Not great but safe. Here's the excerpt from their latest annual regarding the Series 2:

"The First Preference Shares, Series 2 are entitled, if and when declared, to fixed non-cumulative
preferential cash dividends at a rate equal to $1.1875 per share per annum. On and after October 17,
2015, the Company may redeem for cash the First Preference Shares, Series 2 in whole or in part, at
the Company’s option at $25.00 per share, in each case together with all declared and unpaid dividends.

On and after October 17, 2011, the Company may convert all or any part of the outstanding First
Preference Shares, Series 2 into that number of Common Shares determined by dividing by the then
applicable redemption price, together with all declared and unpaid dividends to the date of conversion,
by the greater of $1.00 and 95% of the weighted average trading price of the common shares on the
Toronto Stock Exchange for the 20 consecutive trading days ending on the fourth day prior to the
conversion date."