VIC — Vanshap Capital

By Travis Johnson, Stock Gumshoe, September 17, 2013

David Shapiro and Evan Vanderveer presented for their Vanshap Capital, which is very small but has received seed funding from Markel (MKL).

EGI Financial (EFH.TO, EGFHF pink sheets) is a small company in Missisauga, in property and casualty insurance in four segments — primarily non-standard auto insurance under the name Echelon General, but they also have some specialty and international lines.

One of the few high quality P&C insurers left that trades at a meaningful discount — without improvement in operations it’s worth 50% more than the current price, if they can improve the business it should double. It’s trading at about 80% of book value.

There are no analysts covering the company and it’s relatively illiquid, they overdiversified and became worse in recent years. The diversifivation has erased about 50% of the underwriting income, and Vanshap is urging management to stop this strategy. Personal lines has made money, their other niche, international and US businesses made 2012 a loss and the market is looking at those numbers, not at the dramatically better numbers expected.

They have a strong market share in their active areas, 30%+, and mostly from Ontario. Their loss ratio in the core business has outperformed the industry by about eight points annually, a benefit of the niche market and their specialty knowledge. They’ve also been consistently conservative in their reserving — so the book value of $14.40 per share is probably understated. They also did a big buyback and have just said they’ll buy back another 3.5% of the company.

Combined ratio has averaged 93% over the last decade, so for that above average performance they should get a premium price. The best comparison is Jevco, which was acquired by Intact at 1.4X book value and has superior systems. Some smaller ones have been acquired at 1.1-1.3X book in recent years.

Vanshap thinks the stock could get to a book value of over $20 a share in three years, which would be a dramatic annualized return of 25-40%, and they think risks are low at this valuation.

Eurobank Properties (EUPRO on Athens exchange, OEDZ in London) is a high quality, unlevered Greek REIT, Fairfax Financial is on the board, there’s a short-term opportunity for them to purchase distressed Greek real estate given current turmoil.

Mostly Greek offices, some retail and mized use as well — occupancy is well over 90%, which is a little shocking ...

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