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Help me evaluate this investment
Old 08-17-2016, 07:16 AM   #1
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Help me evaluate this investment

Hi there, I've been following this company for a while now, but it's stock is not behaving as I would expect: DL:EN Amsterdam Stock Quote - Delta Lloyd NV - Bloomberg Markets

Full disclaimer: I have a small position in DL in my gambling account. It is currently down -45%. I guess this tells you all you need to now about my stock picking skills.

But let's focus on the current and future situation: After a lot of turmoil, Delta Lloyd NV, a Dutch insurance company, has recently completed a rights issue. Management feel they are now sufficiently capitalized. There are some issues, but the business is profitable.

Here's the kicker: They published their generally positive half-year figures today, and the stock price rose some 4%. But it still seems dirt-cheap to me! Consider these two figures:
1) The current market cap is ~1.66 billion euros, but shareholders' equity is 3.79 billion euros.
2) If you are looking for income, the (already severely reduced) dividend they announced today is 0.28 euros per share, for a yield of 7.7%.

Is this an opportunity to buy a dollar for 44 cents, or am I overlooking something?

If anybody enjoys this kind of exercise, I would be glad if you shared some insights. You can find the full financial report here: https://www.deltalloyd.com/media/205...-year-2016.pdf, or a somewhat condensed writeup here: Good progress on capital and cash
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Old 08-17-2016, 11:02 AM   #2
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My thinking is that if Delta Lloyd had a bright financial future, Aviva would have kept them.
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Old 08-17-2016, 11:15 AM   #3
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Originally Posted by pb4uski View Post
My thinking is that if Delta Lloyd had a bright financial future, Aviva would have kept them.
They sold it over 3 years ago. I don't think that decision means it cannot be a good investment today, at today's price. Or would you avoid an investment in Chipotle, just because they were once sold by McDonald's?
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Old 08-17-2016, 01:35 PM   #4
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They sold it over 3 years ago. I don't think that decision means it cannot be a good investment today, at today's price. Or would you avoid an investment in Chipotle, just because they were once sold by McDonald's?
Go for it. You may be right, but I'm skeptical. Aviva got rid of them because they were a dysfunctional mess and history seems to be bearing that out.

DL was at 12.65 when Aviva unloaded it and is now at 3.80 so at least so far, Aviva look pretty damn brilliant to me. DL was 11.33 a year ago so the market seems to think they are broken too.
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Old 08-17-2016, 02:02 PM   #5
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I personally do not any longer buy individual stocks. I have become and index guy only. That being said, it is generally thought that stocks are rather always fairly priced in the market based on the information that is known. The price is the collective result of all the buyers and sellers. When the price changes over time that is because of new information that either generally or specifically affects the company. Your experience and study of this stock is deeper than what we in the forum are likely to have so your opinion is better informed. Plus, it's your money so the stakes are different. Go with your judgement.
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Old 08-17-2016, 02:03 PM   #6
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Putting this here as a reminder for myself. I'm interested in doing a first analysis.

I live in the Netherlands and speak Dutch, so there might be some insight for you, who knows

Thinking this weekend earliest though, I haven't done an insurance company before from a 'me owning shares' perspective. (But am familiar with the dynamics).

Very first glance: Other insurers seem to valued at around 0.4 P/B too right now (Aegon and NN are two big competitors here), just like quite a few (European) banks.

That means there is very low trust in the sustainability of that dividend.
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Old 08-17-2016, 04:19 PM   #7
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What happened August 7, 2015 to cause it's stock to fall from $11.xx to $3.xx in 4 months ?
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Old 08-17-2016, 04:28 PM   #8
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I see, they diluted shares by just over 1 billion euros, and cancelled the dividend. Plus sell off some assets.
No wonder the value has dropped..
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Old 08-17-2016, 05:26 PM   #9
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I see, they diluted shares by just over 1 billion euros, and cancelled the dividend. Plus sell off some assets.
No wonder the value has dropped..
Yeah... pass.
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Old 08-18-2016, 01:41 AM   #10
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Thanks for all comments so far.

Quote:
Originally Posted by pb4uski View Post
Go for it. You may be right, but I'm skeptical. Aviva got rid of them because they were a dysfunctional mess and history seems to be bearing that out.

DL was at 12.65 when Aviva unloaded it and is now at 3.80 so at least so far, Aviva look pretty damn brilliant to me. DL was 11.33 a year ago so the market seems to think they are broken too.
Well, you are obviously right that the market doesn't like the stock. My point is, is the deep discount it currently trades at justified, or exaggerated? Besides, looking only at the stock price while ignoring the underlying financials is pointless.

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Originally Posted by DrRoy View Post
That being said, it is generally thought that stocks are rather always fairly priced in the market based on the information that is known.
I'm familiar with the efficient market hypothesis, but I believe it is not always correct in the short run. Sometimes the market exaggerates the impact of new information, in both directions. Like, when everything dropped 10% on the day the Brexit decision was announced. Those losses were exaggerated by irrational fear IMO, and they were fully recovered within days.

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Originally Posted by Totoro View Post
Putting this here as a reminder for myself. I'm interested in doing a first analysis.

I live in the Netherlands and speak Dutch, so there might be some insight for you, who knows

Thinking this weekend earliest though, I haven't done an insurance company before from a 'me owning shares' perspective. (But am familiar with the dynamics).

Very first glance: Other insurers seem to valued at around 0.4 P/B too right now (Aegon and NN are two big competitors here), just like quite a few (European) banks.

That means there is very low trust in the sustainability of that dividend.
Great, I'm looking forward to your findings. I was kinda hoping you would chime in here. IMO, the now much lower dividend should be sustainable, but let's see what you come up with. You are right about the P/B ratio, but e.g. German Allianz is trading at 0.9, and even Italian Assicurazioni Generali, who have issues of their own, is at 0.7. So there may be room for improvement. For the moment, I think I'll just hold my existing position in DL.
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Old 08-18-2016, 12:34 PM   #11
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Originally Posted by RISP View Post

I'm familiar with the efficient market hypothesis, but I believe it is not always correct in the short run. Sometimes the market exaggerates the impact of new information, in both directions. Like, when everything dropped 10% on the day the Brexit decision was announced. Those losses were exaggerated by irrational fear IMO, and they were fully recovered within days.
Yes, Brexit is a good example that market emotions can get out of whack. In this case though, the stock had a big drop a couple months ago and there has been time for the emotions to calm down.
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Old 08-18-2016, 01:08 PM   #12
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Well, you are obviously right that the market doesn't like the stock. My point is, is the deep discount it currently trades at justified, or exaggerated? Besides, looking only at the stock price while ignoring the underlying financials is pointless.

I'm familiar with the efficient market hypothesis, but I believe it is not always correct in the short run. Sometimes the market exaggerates the impact of new information, in both directions. Like, when everything dropped 10% on the day the Brexit decision was announced. Those losses were exaggerated by irrational fear IMO, and they were fully recovered within days.
You are obviously correct that the stock is deeply discounted, but I don't think that necessarily makes it a great value. The biggest red flag to me is the cancellation of the dividend very recently. I personally wouldn't touch it after that, particularly when they bring it back and it's such a high yield. It seems unsustainable. Then again, I wouldn't invest there because it's unfamiliar territory to me personally.

At this point, I think an investment in that stock is speculative based on price. While I agree that the market is inefficient over the short term - essentially the basis of all value investing - I don't think I would look to this particular issue as either "value" or "investing".
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Old 08-19-2016, 01:54 AM   #13
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The biggest red flag to me is the cancellation of the dividend very recently. I personally wouldn't touch it after that, particularly when they bring it back and it's such a high yield. It seems unsustainable.
OK, but in order to evaluate that, wouldn't it make more sense to look at how much profit they (will) make and how big the share of the dividend is?

If I understand this correctly, the consensus estimate for net profits is around 1.00€/share, and the planned dividend is 0.28€/share.

Don't get me wrong, I do not want to hype the stock, and I'm fully aware that it's highly speculative. I'm just genuinely curious about the valuation.
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Old 08-19-2016, 05:27 AM   #14
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....If anybody enjoys this kind of exercise, I would be glad if you shared some insights. ...
A bunch of people have shared their insights with you.... most are bearish and one is still looking at it. Skepticism abounds about this ticker, but you seem to want to debate each response. You are obviously bullish on this dog, so why don't you just do what you want and see how it turns out.
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Old 08-19-2016, 10:19 AM   #15
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A bunch of people have shared their insights with you.... most are bearish and one is still looking at it. Skepticism abounds about this ticker, but you seem to want to debate each response. You are obviously bullish on this dog, so why don't you just do what you want and see how it turns out.
pb4uski, I'm interested in an educated exchange of ideas. Such a debate requires people taking opposite sides of the issue. Honestly, if this rubs you the wrong way, why do you keep posting here?

All comments are welcome, but I'm most interested in facts and analysis. You know, cold hard numbers rather than feelings.
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Old 08-19-2016, 12:49 PM   #16
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OK, but in order to evaluate that, wouldn't it make more sense to look at how much profit they (will) make and how big the share of the dividend is?

If I understand this correctly, the consensus estimate for net profits is around 1.00€/share, and the planned dividend is 0.28€/share.

Don't get me wrong, I do not want to hype the stock, and I'm fully aware that it's highly speculative. I'm just genuinely curious about the valuation.
You have a possible choice here, you could double up on the investment, wait 30 days to get past the wash rules and then sell your original investment, so you capture the loss for taxes while maintaining your speculative investment.
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Old 08-19-2016, 01:37 PM   #17
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You have a possible choice here, you could double up on the investment, wait 30 days to get past the wash rules and then sell your original investment, so you capture the loss for taxes while maintaining your speculative investment.
That's an interesting idea. AFAIK, my legislation (Germany) doesn't even have wash rules, so I could do that right away. I definitely will look into selling at least part of the position still this year for tax loss harvesting purposes.
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Old 08-23-2016, 05:33 AM   #18
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RISP, your original post is too confusing for me to understand the company or why one should invest in them so it is a no for me. In order to understand your investment better I would ask

What is it you want? What are your investing goals?
What methods do you suggest to achieve those goals?
How specifically does this company fit the above criteria?
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Old 08-23-2016, 06:56 AM   #19
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RISP, your original post is too confusing for me to understand the company or why one should invest in them so it is a no for me. In order to understand your investment better I would ask

What is it you want? What are your investing goals?
What methods do you suggest to achieve those goals?
How specifically does this company fit the above criteria?
Good questions.

What is it you want? - Money, lots of it.
What are your investing goals? - One day, I want to have so much money that I will not have to work anymore, unless I want to.
What methods do you suggest to achieve those goals? - Work hard, live modestly, avoid debt, save a lot, invest wisely, stay married.
How specifically does this company fit the above criteria? - First, I think this needs to be separated from my main game plan, which consists of index funds and buy-and-hold. What we are talking about here is a smallish position in the speculative part of my holdings. Call it the 'fun money' if you want. What I'm trying to do there is to buy stocks that I consider 'cheap', with the intention of either holding them indefinitely or selling them once the valuation normalizes. Does DL fit that definition? Well, that's the question. I think it might, but most posters here seem to disagree (though nobody has yet really analyzed the valuation. Maybe Totoro still finds the time to review it and share some of his findings).

What exactly did you find confusing about my original post?
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Old 08-23-2016, 07:22 AM   #20
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I would argue a couple of points.

Your goal is too generic, I hope you better define it.
How much money will it take to FIRE?

With such an important goal, why separate any money from that goal?

I have no fun money, I do not gamble or speculate.

If this investment were part of your real money, is it the best way to get obtain your goal? Is choosing a "cheap" stock a good idea, and if so, how?

I think most posters here agree that DL is a cheap stock. I think they disagree with its chances of adequate returns.



FWIW, I prefer to focus on companies that can experience exponential growth in new markets.

If the market cap is 1.6B euros, THAT IS THE SHAREHOLDER EQUITY. No more analysis required.
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