VIC — ValueAct (Jeff Ubben)

Insurance Bargain from the Value Investing Congress

By Travis Johnson, Stock Gumshoe, September 17, 2013

Jeff Ubben’s ValueAct is an activist investment group, they try to get access to companies, develop relationships with them, serve on boards, and create value. They don’t hedge or short or use leverage and he keeps his own money in the fund, so he is very, very careful.

And he defines value, which most people don’t — he say when they look for value they’re looking for a cash on cash return of 10% of more. They’ve been in the news lately for their big investment in Microsoft that he talked about a couple Congresses ago.

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The company he’s presenting today was an investment of theirs initially in 2009, they were concerned about succession issues, slowly became more involved, and got on the board this year.

What kinds of stocks he likes — they are business model focused, not industry or macro focused. They like:

Differentiated business models Disciplined oligopolies Fee-based, recurring revenue models Low-risk, analyzable financial statements Proven management teams

His picks last time around were Moody’s and CB Richard Ellis (CBG), which fit into many of those categories — and they benefit from low interest rates, but aren’t traditional spread-based financial companies. They’ve since sold Moody’s and still own CBG.

CBG offers still a great platform for global growth — it’s a good time to buy when people are afraid of growth. They like “game over” assets — massive market share, no one else has any market share.

His company today offers another platform for growth: Willis Holdings (WSH)

Willis is a player in insurance and reinsurance, $7 billion market cap. They do P&C, P&C brokerage, specialty, and reinsurance.

Willis did a bad acquisition in 2008 to buy a big North American position (that was HRH), so they were stuck with high cost debt and bought more market share when pricing was getting steadily worse. This created an opportunity to buy a flat earnings profile, loss of earnings power on interest income, and squeezed free cash flow from pension payments in their UK business.

Today, rates are turning in the insurance cycle (this is a big part of my thematic argument for the current environment, and why I hold a bunch of insurance companies). They brough tin a new CEO and are accelerating cash flow, they’re growing North America and International and they’re taking market share globally.

Client retention rates are very ...

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