Trupanion is a leading provider of medical insurance
plans for cats and dogs in North America. Trupanion’s
core product covers accidents, illnesses, diagnostic
testing, surgeries, medications, and hospital stays. Pet
owners can also select extra packages that cover items
such as boarding fees, acupuncture, or physical therapy
for an additional monthly cost.
All amounts in US$ unless otherwise noted.
Technology — Internet STRONG Q2 RESULTS Summary
In its first quarter as a public company, Trupanion reported strong Q2
results that were in line with the expected ranges disclosed in the S1.
The company added ~13k new pets and finished the quarter with ~195k
enrolled pets, model efficiency remained high (LVP/PAC of 5.4x), and
revenue guidance for the rest of the year exceeded our estimates. We
continue to believe Trupanion’s strong customer satisfaction (98.65%
retention rate in Q2) and strong vet relationships will enable the
company to effectuate much higher levels of pet insurance penetration in
the US and Canada, leading to a long runway for growth. Key Points
Bullish: Revenue growth of 42% decelerated only very slightly from
44% in Q1; the LVP/PAC ratio of 5.4x was above the company’s 5.0
target; revenue guidance for Q3 and 2014 was well ahead of our
Bearish: Trupanion remains in investment mode and as previously
discussed should continue to be in an EBITDA loss position through
2015. Estimate changes: We are marginally increasing our revenue
estimates. Our 2014 and 2015 revenue and non-GAAP EPS
estimates go to $115M/$(0.44) and $149.6M/$(0.26) from
$113.1M/$(0.43) and $146.9M/$(0.26). Valuation
We maintain our BUY recommendation. Our $13 price target is based
on 2.5x our 2015 revenue estimate of $147 millio
Buffett cut long-held holdings of J&J, P&G and Kraft Foods. Why? (Image credit: Getty Images via @daylife)
Berkshire Hathaway took the ax to some of the longest-held names in its stock portfolio last quarter, sparking questions over just how much sway Warren Buffett is sharing with his recently-installed investing colleagues.
to help manage a chunk of the firm’s approximately $75 billion equity portfolio. Both managers were expected to start small and gradually manage more and more of the company’s holdings until ultimately taking over whenever Buffett steps down.
Deal Journal’s Erik Holm says the cuts may represent a changing of the guard to some small degree, with Buffett sharing more investing responsibility with his younger colleagues:
The moves, disclosed in a regulatory filing Tuesday, reveal an uncommonly active quarter for Berkshire leader Warren Buffett and Berkshire’s new portfolio managers, Todd Combs and Ted Weschler.…
Tom Russo, a longtime Berkshire shareholder who manages more than $5 billion as a partner at Gardner Russo & Gardner, theorized that Buffett was selling off the positions to allocate more capital to Combs and Weschler, who are expected to take on ever-larger slices of Berkshire’s investment portfolio in coming years.
The cuts were substantial, and did come from some of the biggest positions in the Berkshire portfolio: J&J, P&G and Kraft were three of 14 equity positions worth more than a billion dollars at the end of 2011. Positions of that size are assumed to be Buffett’s bailiwick, considering the Oracle of Omaha told shareholders earlier this year that his two deputies each had their mandates raised by a billion dollars and manage about $2.75 billion.
At recent prices, and with the caveat that it is quite possible Berkshire’s positions have changed since June 30, Buffett holds $706 million worth of J&J, just under $4 billion in P&G and $2.4 billion in Kraft. Those positions were cut by two-thirds, a fifth and a quarter from March 31. But it is not a guarantee that the cash raised from paring those stakes found its way into the baskets of Combs and Weschler
While the logic makes sense, another longtime Berkshire shareholder, money manager and Forbes contributor Martin Sosnoff, thinks the portfolio reduction – the overall equity portfolio was trimmed to $74.3 billion from $75.3 billion — might mean Buffett is readying another big acquisition along the lines of his 2010 takeover of Burlington Northern Santa Fe.
Sosnoff, who manages $6 billion at Atalanta Sosnoff Capital writes that while Buffett may be conserving capital in the face of ”investment waters filled with riptides ,” he thinks there is just as good a chance the world’s third-richest man is readying for one last mega-play, another opportunity to step up to the plate when few others can or will. Remember, Buffett also stepped up with sorely-needed capital in 2008 for Goldman Sachs Group and General Electric — bets that paid off handsomely — and again in 2011 for Bank of America.
Insurance and investment giant Fairfax Financial Holdings Ltd. says second-quarter profit rose 14%, largely due to improved underwriting results and a jump in revenues from premiums written by its insurance and reinsurance businesses.
The Toronto-based financial services company, which reports in U.S. dollars, said Thursday it earned US$95-million, or US$3.85 per diluted share, up 14% from the US$83.3-million, or US$3.40 per diluted share during the year-ago quarter.
The underwriting business at the casualty and property insurer swung back to profit — US$34.8-million — from a loss of US$6.1-million during the quarter a year-ago, when it booked losses related to an influx of tornadoes in the U.S.
Net insurance premiums written increased by 14% to US$1.6-billion from US$1.37-billion in the 2011 quarter.
However, the improved results from its underwriting and premiums were offset by lower investment gains and lower interest and dividend income during the volatile quarter.
Our underwriting results continued to improve on increased premiums and we produced a small investment gain notwithstanding unrealized investment losses related to our defensive hedging strategy,” said Prem Watsa, chairman and CEO of Fairfax.
“We continue to maintain our equity hedges as we remain very concerned about the economic outlook over the next few years.”
Companies buy hedges — contracts that protect the future value of investments and other assets — during volatile stock markets. However, unexpected share price swings can lead to paper losses on the balance sheet, which must be accounted for.
Operating income in the insurance and reinsurance businesses fell to US$117.3-million from US$146.2-million in the quarter of 2011, largely due to the decrease in interest and dividend income.
Interest and dividend income slipped to US$104.9-million from US$195.1-million as the company increased its holdings in low-yielding cash and short-term investments.
The company saw lower gains from investments, coming in at US$71.5-million during the quarter, compared to a gain of US$119.6-million in the 2011 quarter.
It also booked a US$7.2-million loss from its equity hedging strategy, which compared to a US$396.6-million gain in the year-earlier quarter. That was largely offset by a US$40.9-million gain on equity investments this quarter, compared to a US$624.8-million loss during the quarter of 2011.
The company decided to hedge its exposure to equity investments in response to significantly higher stock valuations and economic uncertainty and equity hedges represented 104.2% of its equity and related holdings as of June 30.
“The market value and the liquidity of these hedges are volatile and may vary dramatically either up or down in short periods, and their ultimate value will therefore only be known over the long term,” Fairfax said in its earnings release.
During the quarter, the insurance and investment giant announced plans to buy a 77% interest in travel business Thomas Cook (India) Ltd. for about US$150-million.
And it also revealed it would acquire Brit Insurance Ltd. of London from Brit Group for about US$300-million.
Research In Motion
The company also recently doubled its stake in Research In Motion after the company announced a new chief executive and revamped board of directors. Watsa also took a seat on its board.
In an interview with Bloomberg Television, Warren Buffett said that Wells Fargo’s dominance of the U.S. mortgage market should pay off as the housing market rebounds. Buffett said, “They’ve got a sensational mortgage operation. The total mortgage market was at the $3-trillion level not that long ago. If it goes back up to $3 trillion, I hope Wells is doing a third of those.”
In the first quarter of 2012, Wells Fargo created one of every three mortgages in the U.S., and is looking to boost its market share to 40%. Additionally, the company said that the number of applications set a new quarterly high during the most recent three months. Buffett believes Wells Fargo is outpacing its competitors because it managed to successfully navigate the housing crisis. “Wells did the best job of the big players in the mortgage market and therefore they’ve garnered a share as the other fellows have fallen by the wayside.”
Buffett’s Berkshire Hathaway has built its stake in Wells Fargo to over 7%, according to Bloomberg, adding to its position earlier this year. In addition to the Wells Fargo investment, Buffett’s other bets on the housing market include the purchase of a brickmaker, the expansion of Berkshire’s real estate brokerage and the purchase of commercial property through a company jointly owned with Lecadia National Corp.
Ann Heisenfelt/Associated PressAngela F. Braly, the chief of WellPoint, tangled with Congress in 2010 over concerns that her company charged customers too much.
WellPoint, one of the country’s largest health insurers, has agreed to buy Amerigroup in a bid to bolster its Medicaid business as the industry undergoes an overhaul.
The company said the transaction, which is expected to close early next year, is valued at about $4.9 billion. Under the deal, WellPoint will pay $92 a share in cash for all outstanding shares of Amerigroup, roughly a 43 percent premium over the previous closing price of $64.34.
The deal will give the combined company’s Medicaid business a presence in 19 states, according to a news release announcing the acquisition.
“We believe that this combination will create an industry leader in the government sector serving Medicaid and Medicare enrollees,” Angela F. Braly, the chief executive of WellPoint, said in the statement. “This is an opportunity to capitalize on the strengths of both companies to better serve our members and position our companies for future growth as the health insurance industry changes,” she added.
The deal was the latest in a string of acquisitions for WellPoint. Last month, the company agreed to buy 1-800 Contacts, the contact lens retailer. And last year, WellPoint bought CareMore, a provider of managed care for the elderly, for about $800 million.
Warren Buffett whose prediction last year of a housing recovery was premature, is raising his bet on a rebound with his $3.85 billion bid for a mortgage business and loan portfolio from bankrupt Residential Capital LLC.
The offer “certainly indicates that he thinks the worst is behind us,” Jeff Matthews, author of “Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett,” said in a phone interview. “Yes, he’s been wrong about housing before. But if you look at any credit metric, if you look at any of the banks and what’s happening in their loan portfolios, it’s getting better.”
Foreclosure filings in the U.S. have fallen on an annual basis for 20 straight months, according to RealtyTrac Inc., and home prices jumped 1.8 percent in March, the biggest monthly increase in at least two decades, as record-low mortgage rates and a dwindling inventory of properties available for sale strengthened demand.
Buffett’s Berkshire Hathaway Inc. (BRK/A) has prepared for a turnaround by buying a brickmaker, expanding its real estate brokerage and wagering on commercial property through a company jointly owned with Leucadia National Corp. (LUK) The venture, called Berkadia Commercial Mortgage LLC, was formed from a loan- servicing and mortgage business purchased out of bankruptcy in 2009 and once owned by ResCap’s parent.
Ally Financial Inc. (ALLY), a Detroit-based auto lender majority owned by U.S. taxpayers, put its ResCap unit into bankruptcy last month to distance itself from the mortgage lenders’ losses and help repay its 2008 bailout following the U.S. housing crash and subsequent credit crisis.
U.S. Bankruptcy Court Judge Martin Glenn is scheduled to consider approving auctions for the assets at a hearing today. Berkshire said in a June 11 court filing that it’s seeking to replace Fortress Investment Group LLC (FIG)‘s Nationstar Mortgage Holdings Inc. as the stalking-horse, or initial, bidder at an auction for ResCap’s mortgage business. Berkshire has also proposed replacing Ally as the first bidder for the Minneapolis- based lender’s loan portfolio.
The billionaire’s Omaha, Nebraska-based firm, which is a ResCap bondholder, offered to match Fortress’s price of about $2.4 billion for the mortgage operations. It’s also proposing fees that are about $60 million lower than Nationstar’s if it’s outbid. Berkshire said it’s prepared to pay $1.45 billion for the loan portfolio, compared with Ally’s $1.4 billion for a sale outside the bankruptcy plan backed by the car lender.
The judge can either accept Nationstar as the stalking horse for the mortgage unit, name Berkshire in its place, or refuse to grant any company the protections, such as the breakup fee, that come with being the initial bidder.
Buffett has “come out with what appears to be a very real offer to buy the assets,” said John McKenna, a managing director at Miller Buckfire & Co., a New York-based financial advisory firm. “The court will ferret out whether it is a tactic or a legitimate interest in acquiring the assets.” A buyer can’t “just show up and feign interest in order to generate a better return.”
Nationstar said Berkshire’s request shouldn’t be granted because it may discourage potential investors in future bankruptcies from devoting the time and money required to be a stalking-horse, according to a June 14 court document. Susan Fitzpatrick, a ResCap spokeswoman, Fortress’s Gordon Runte and Ally’s Gina Proia declined to comment. Buffett didn’t respond to a request for comment sent to an assistant.
ResCap rejected Buffett’s offer to be the initial bidder and asked the court to approve the Nationstar and Ally proposal on June 14. Should Glenn approve ResCap’s plan, Berkshire still could bid in the auctions. It wouldn’t have the advantages given to the stalking horse, including any breakup fee.
The court will probably affirm Nationstar as the initial bidder for the mortgage assets, beginning a three-month auction process, Douglas Harter, a Credit Suisse Group AG analyst, wrote in a June 13 note after meeting with the firm’s management. He said he expects other bidders to emerge.
Acquiring ResCap’s mortgage business would give Berkshire contracts to service loans, a function Berkadia provides for commercial real-estate investors. It would also give Buffett another platform to originate mortgages, which his firm already does for buyers of its Clayton unit’s pre-fabricated homes.
Berkshire, which holds the second-highest credit rating from Standard & Poor’s, can access funding cheaper than almost any company in the U.S. It sold $750 million of five-year bonds paying a 1.6 percent coupon last month.
ResCap, once among the largest subprime mortgage originators, reduced its assets to $15.7 billion in the first quarter from more than $130 billion in 2006. The firm is the fifth-largest U.S. mortgage servicer, handling the billing and collections on about $369 billion mortgages in the first quarter, according to Inside Mortgage Finance, a trade journal.
Some of the largest home lenders including Bank of America Corp. (BAC) have retreated from servicing and underwriting loans as new international rules designed to avert another financial crisis force banks to raise capital. That’s creating an opportunity for investors like Buffett to scoop up assets at discounted prices and benefit from the rebound in housing, said David Lykken, the managing partner of consultant Mortgage Banking Solutions.
Since the collapse of the housing market, investors have been asking, “When’s the time to catch this falling knife?” he said. If Berkshire wins the auction for the loan portfolio, the firm may be able to increase the assets’ value by modifying some of the mortgages, he said.
Buffett has said the real-estate market will rebound because a growing number of households will need properties while supply has dropped after builders retreated following the collapse. U.S. housing starts have plunged about two-thirds since 2006 and property prices are more than 35 percent below their peak that year.
“Housing will come back — you can be sure of that,” Buffett wrote in a February letter to Berkshire shareholders. “Every day we are creating more households than housing units. People may postpone hitching up during uncertain times, but eventually hormones take over. And while ‘doubling-UNNp’ may be the initial reaction of some during a recession, living with in- laws can quickly lose its allure.”
Berkshire is the largest investor in Wells Fargo & Co. (WFC), the biggest U.S. home-loan originator, and has a preferred stake in Bank of America, the fourth-largest U.S. mortgage lender. Buffett’s firm also has subsidiaries that make carpet, building insulation and roofing materials. Its subsidiary Acme Brick Co. last year bought Montgomery, Alabama-based Jenkins Brick Co.
The HomeServices of America Inc. unit has struck deals to acquire real-estate brokerages in Connecticut, Oregon and the state of Washington this year on the expectation that home sales will rebound as banks liquidate seized properties after settling foreclosure-misconduct claims. The housing market is “starting to show a pulse,” HomeServices Chief Executive Officer Ron Peltier said in an April interview.
Berkshire attempted to buy ResCap for $1 before the bankruptcy last month, the mortgage lender said in a June 14 court document. “Neither ResCap entering into bankruptcy nor a sale of ResCap’s mortgage production platform is in the best interests of Ally, the U.S. Treasury, Berkshire and other significant stakeholders in both Ally and ResCap,” Berkshire said in a May 3 letter, according to the filing.
Buffett’s firm proposed taking on ResCap’s potential liabilities, such as mounting litigation costs, according to three people familiar with the matter who requested anonymity because talks were private. Berkshire wanted to avoid a ResCap bankruptcy because it held unsecured debt, the people said. Ally rejected the proposal after deciding that a bankruptcy filing and sale better protected the company from future liabilities, the people said.
Buffett’s firm invested in ResCap’s secured and unsecured bonds more than two years ago, according to a June 4 court filing, in which Berkshire called for a probe of the mortgage lender’s pre-bankruptcy deals. Prices for three of ResCap’s unsecured bonds climbed after the document was filed, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Two days later, Berkshire had sold its unsecured debt, which had a face value of more than $500 million, according to court documents. Berkshire said in a court filing it holds more than $900 million in ResCap’s junior secured bonds. ResCap’s 9.625 percent junior secured notes, which Berkshire’s General Re unit owned as of Dec. 31, trade at 95 cents on the dollar after rising from 56.9 cents in November.
In a statement released Thursday, March 8 the Treasury said it expects to
earn about $6 billion from the sale and that AIG had agreed to by roughly half of the offering. The Treasury last sold shares of AIG in May 2011, also at a price of $29 per share, cutting its stake from 92% to 77%.
The most recent sale cuts the Treasury’s stake to roughly 70% according to Bloomberg. Additionally, AIG and the treasury announced a plan to repay $8.5 billion in obligations to the government. The insurer will use $5.6 billion from the expected proceeds of the AIA share sale, $1.6 billion
from the wind down of a Federal Reserve controlled vehicle and $1.6 billion from the proceeds of a sale to MetLife (MET) completed in 2010. As the economy strengthens and the market climbs, the Treasury looks to continue unwinding bailouts.