Stock Analysis Pollie Style!
In my half year review of 2017 (You can read it here – Letter to my readers – 2017: Half year review).
I told you that I looked into a lot of companies, but didn’t post this on my website. So I imposed myself to publish more analysis Pollie-style.
Today I’ll take a look at one of the worlds biggest reinsurance companies. This German company has been paying dividend for more than 45 years and has been raising its dividend for more than 25 years. I don’t have any German stocks in my Vrijheid Fonds yet. So before I buy this stock I first have to dive into de dividend tax agreement between The Netherlands and Germany.
This analysis is on Münchener Rückversicherungs-Gesellschaft AG or Munich RE as it’s more commonly known (MUV2).
From google finance: Muenchener Rueckversicherungs Gesellschaft AG in Muenchen is a Germany-based company engaged in reinsurance and insurance business. The Company divides its operations into reinsurance, primary insurance, and Munich Health and Asset management.
The Reinsurance business comprises five divisions:
- Europe and Latin America;
- Germany, Asia Pacific and Africa;
- Special and Financial Risks;
- Global Clients and North America.
The business covers a range of products from traditional reinsurance products to solutions for risk assumption. The Company’s primary insurance activities are combined into the ERGO Insurance Group (ERGO), which offers direct insurance, life, property-casualty, health, legal expenses and travel insurance products. It covers the Company’s international health reinsurance business and health primary insurance outside Germany and engages the risk management services. The Asset management business handles the investment activities of Munich Re and ERGO.
Can I explain this to a 10-year old? What Does This Company Do?
With this company you can have insurance for our car or our home. Furthermore you can have a healthcare insurance with them, so they will pay your hospital bill.
Dividend Aristocrat: This company has been paying dividends for almost half a century. It has been raising its dividend for more than 25 consecutive years. It is therefore a Dividend Champions. That’s a Pass!
Dividend Yield > 2.5%: The dividend Yield of MUV2 is 4.7%. This is above the industry average of 1.4%. The Yield is way above the requirements of the Pollie-Code, and therefore it is a Pass.
Dividend payout <70%: The dividend payout is roughly 52%. This is below the maximum ratio. This’s what a DGI wants. So MUV2 also passes for this point.
DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 and 10 years are 4.2, 5.9, 6.6 and 6.7. With a 3-years average around 5.9% this looks very good! And it is above the requirements of the Pollie-code, so it is a pass.
P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. MUV2 has a current P/E ratio of 86.5. The industry average is 42. The P/E ratio is above the industry average. The P/E-ratio is above the requirement of the Pollie-Code. So this is a Fail.
EPS > 0: The EPS is 2.0. Therefore MUV2 passed the sixth Pollie-Code
ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 9.6%. This is just below the requirements and therefore it is a Fail.
Market Cap. > 100M: No problem at this point. The market capitalization is more than € 28,650 Mil. You guested it already: Another pass.
Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 11.3. This is below the Pollie-Code requirements. This is another Fail.
Stock price 52wk high-25%: The 52-week high and low are: 199 and 166.60. This means that MUV2 will be in my buying zone when the stock price is below 190.90 ((199-166.60)*0,75 + 166.60). At this moment MUV2 is trading for €184.48. Therefore it is a pass on the Pollie-Code.
Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for MUV2 is 0.77.
Debt/Equity ratio: MUV2’s level of assets compare to its equity is low (i.e. an appropriate level of borrowing to fund lending). This is what I found on the Internet. I haven’t found the right numbers to calculate theirs Debt/Equity ratio.
When I look at my analysis, MUV2 passed 7 out of 10 metrics of the Pollie-code. The P/E ratio is very high in comparison to the industry average. The current share price is above its future cash flow value. So there are overvalued. But still almost 84% of the analysts have a hold or buy recommendation (see here). When the share price drops below €148, MUV2 will be attractable again.
If we look at the risk for Munich Re, one risk, for me, is standing out. They have a high dependency on the capital market. When the European Central Bank decides to end its Quantitative Easing program and interest rates take a hike, the company’s profitability in the short-term will be under pressure. But the company has been and is managed in a good way, so in my humble opinion this risk is in good hands.
If I asked my German neighbors, they tell me that Munich RE is a widows and orphans cash cow and is a bond-type investment in many German households because of the stable return to investors over the past five decades.
All this information together I will leave MUV2 on my watch list for my Vrijheid Fonds.
What are you – the readers, thoughts on Munich Re? Is it a buy, do you own it?
Please comment on my analysis and thanks for stopping by!
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