Thought this might be interesting for this board, hence posting here.
Country Incorporated: Bermuda
History
This is a company originally recommended by Global Gains back in 2009. The stock was at $63 back then, and I bought it at the time. In the interest of full disclosure, I have not sold a single share since then. I own the stock, so my viewpoint might be biased. Part of this write up is taken from GG’s original write up.
The Business
Insurance and reinsurance companies don’t always do well. As a matter of fact a lot of them don’t do as good. There are insurance companies that have written policies and hold a significant float and outstanding liabilities but have stopped writing more policies. Enstar buys these companies in run-off and typically does so at a discount to fair value. Enstar derives a significant value from these companies as it puts the cash to use and works on getting rid of the liabilities. Typically they do this by buying out claim holders before the policy expires. The company then takes the excess cash it generates and invests it in variety of financial vehicles. The most high profile investment is a hedge fund run by 11% shareholders (GS alumnus, and private equity heavyweight J. Christopher Flowers.
The business model is capital light and generates significant returns and allows Enstar to hold cash. The results could be lumpy at times.
Financials
Back in 2009 when ESGR was originally recommended by GG, the book value / share was $45. At that time, the comparison was made to the book value back in 2005, which was $20. The amount of cash and cash equivalents at that time was $1.5B.
Today, ESGR has grown its book value from 2009 at a rate of 19% to $115. Today the amount of cash and cash equivalents is $4.5B. In 2009, the stock was trading at $63 (at time of recommendation), which was 1.4 times book. Today the stock is trading at $138, which is 1.2 times book value. The range of trading has varied quite a bit. The lowest p/b ratio for ESGR has been 1.13 and the max p/b ratio for ESGR has been 3.55.
With today’s book value with these ranges, we get a stock price range of $130 - $409. ESGR is trading very close to the lower end of the spectrum.
If the growth in book value continues at a 15% compounded rate for the next 5 years, given the above P/B range, we are looking at a stock price between $262 - $823.
Risks
The people running the show are key as they have found a good way to find deals and allocate capital. If either suffers, the stock could suffer. The key metric to watch here is P/B. As long as the book value keeps growing, Enstar will do well.
I have held Enstar since 2009 and bought twice during that time. I barely look at this investment. Recently I have looked at this a little more than I have in the past.
Vish