A look back at two value-style investments I’ve written about over the past year, to see if they’re still attractive investments.
Reinsurance Group of America – Slow and steady
I first discovered Reinsurance Group of America Inc (NYSE:RGA) at the end of July last year. The company had just released a dismal set of second quarter results. However, the loss for the first quarter was, for the most part, superficial due to higher provisioning for losses related to sums reinsured in the Australian disability market. At time of writing, the stock was trading at $68.28.
Nearly 13 months on and the shares have risen to an all-time high of $83.15, beating the S&P 500 by a small margin of 3% over the same period, excluding dividends.
Despite this strong performance however, Reinsurance Group of America Inc (NYSE:RGA) appears to remain undervalued. The company reported fiscal second quarter results at the end of July, showing improvement across several metrics. Australian operations have recovered well and the company’s Australian arm reported results just above breakeven for the period.
Management has continued to buyback stock using excess capital and the number of ordinary shares in issue has dropped 4.2% year on year. Book value per share jumped 17.2% over the twelve month period. Total assets grew by 11.4%.
But it’s really the growth of Reinsurance Group of America Inc (NYSE:RGA) over the long term that continues to impress. From year end 2008, to a trailing twelve month figure, the company has grown the book value per share at a CAGR of 18.4%, assets at a CAGR of 12.8% and the dividend per share at a CAGR of 24.6%. Additionally, over the same period reported EPS have expanded at a GAGR of 15% and revenue at a CAGR of 12.3%.
On a valuation basis, RGA is currently trading at a P/B value of 0.9, below the insurance industry average of 1.2. The company trades at a forward P/E of 9.8, once again below the industry average of 11.8 and price to free cash flow ratio of 3.2, below the industry average of 8.8. On a historic basis, the company is trading 10% above its ten-year average forward P/E of 9.
So, RGA remains cheap and further gains could be on the horizon.
American Railcar Industries – Lease income
Another company that appeared undervalued this time last year was American Railcar Industries, Inc. (NASDAQ:ARII).
Initially, my thesis on American Railcar was based on the company’s railcar leasing fleet, which was achieving an impressive return on assets. The release of full-year 2013 figures showed that American Railcar achieved a ROE of 21.6% during 2013, a ROIC of just under 20% and a ROA of 10.6%. Not only was American Railcar able to profit from the investment in its leasing fleet, the company also benefited from the rising demand for new tanker cars within the U.S.
Nevertheless, these impressive returns have not gone unnoticed and since first writing about American Railcar, the company’s shares have surged by more than 140%.
This rapid rise has sent American Railcar Industries, Inc. (NASDAQ:ARII)’s valuation through the roof. Now, American Railcar is trading at a P/B value of 3.7, double the industry average of 1.9. The company trades at a forward P/E of 17, once again above the average of 15.4. On a historic basis, the company is trading above its ten-year average forward P/E of around 13, (after stripping out 2011, when the multiple surged to 118).
So, American Railcar Industries, Inc. (NASDAQ:ARII) appears to be expensive. Still, the company achieves sector leading return on assets/capital figures, so it could be worth paying for this quality. That said, American Railcar has no easily distinguishable moat and competitors could easily grab market share.