Sunday 23 March 2014

Analysis of Münchener Rückversicherung (MüRe) 2014

A German re-insurance company

Company: Münchener Rückversicherung

Business: A German re-insurance and insurance company. They are divided into three larger groups which is the Re-insurance (50% of revenue what they do is to give insurances to insurance companies which means that the deals are big and often complex in nature), Primary Insurance (Around 35% of revenue and concerns every classical insurance that you as a private person or business need for your every day life) and finally Health Insurance (Less than 15% of revenue and concerns all the health related insurances that people need).

Active: The are with their three divisions present all over the world on each continent. Their strongest presence is traditionally still Europe and Germany.

P/E: 8.3

For the previous analysis of MüRe please look here.

contrarian values of P/E, P/B, ROE as well as dividend

The P/E of MüRe is excellent with 8.3 and the P/B is fully acceptable with 1.1 which gives us a very clear buy signal according to Grahams formula. Their earnings to sales are at 5% which is ok and the ROE is almost 13% which one could hope to be a little bit better but it is still good for a company that pays an acceptable dividend. The book to debt is however as horrible as it is for banks which I do not like. In the last six years they have had a yearly growth of 5.5% but it has been almost flat for the last three years so they live on former glory with the growth. Still it gives us a motivated P/E of 15 to 19 which means that MüRe is undervalued on the market today. They pay a fully acceptable dividend of 4.7% which correspond to only 39% of the earnings so they should be able to keep it up with maintained earnings.

Conclusion: Graham says yes to this company and I say today no to it. Not because it is too highly valued but because I think that with another bad earnings year which inevitable will come due to a nature catastrophe or nuclear power plant failure such as Fukushima then it is a good moment to buy more shares of MüRe. This is in my opinion a company to keep for life. So I would keep observing it and if major drops occur then I will try to buy more shares.

If this analysis is outdated then you can request a new one.


Lundaluppen said...

Looks really interesting, thanks for the summary.

Fredrik von Oberhausen said...

Yes, but do not forget here that MüRe has had record earnings lately which should not go on eternally in their line of business.

LoK said...

What would, in your view, a more normalized earning be ?

Fredrik von Oberhausen said...

Hi LoK,

If I look back the last seven years then the average yearly earnings becomes 2520 million € and it seems to stay around there unless it is a year with an extreme amount (or size) of accidents or extremely few accidents that needs to be settled such as for instance last year.

So if we use the 2520 mn € then that gives us a P/E7 of around 14 which is still an ok price based on their yearly growth but not as good as it looks like in the table above.

LoK said...

Thank you for the reply.

Do you have any link to historic share prices on Munich Re?

I've looked here: But I'm uncertain if this is the same paper... ?

If it is; what I'm curious about is the large drop in share price in early 2000. Is it the result of WTC attacks the heavy flooding in Europe?

Fredrik von Oberhausen said...

On they give shareprice that goes back to 1994.

The reason for the drop i do not know. Any reader that has followed MüRe for a long time and know the teason for the drop?