Analysis of Talanx 2014

Company: Talanx

ISIN DE000TLX1005 | WKN TLX100   

Business:  A German insurance company (better put it is part of a mutual holding insurance company). It is divided into five divisions: Industrial Lines (covering all the insurance needs of industrial companies), Retail Germany (retail and commercial customers covering property/casualty), Retail International (the same as previous division but outside of Germany), Reinsurance (non-life reinsurance via especially Hannover Rückversicherung that Talanx own to 50.2%) and finally Financial Services (which is among other things an internal reinsurance part for the entire group). The Talanx group contains many companies and the full list can be found here.
Active: Talanx with daughter companies are active in over 150 countries world wide.

P/E: 8.9

Comment: I spent far longer than usual with Talanx and I even ended up calling their IR department which I found very professional yet surprised over receiving a phone call from a potential investor. Either way... Talanx is owned to 79% by HDI V.a.G. and to 6.5% by Meiji Yasuda Life Insurance Company which leaves 14.5% free float so fairly little. So... HDI is a mutual insurance company meaning that it is owned by the customers. That makes it difficult to bring in new money and also difficult for the management to give themselves fat bonuses which is probably why they started the Mutual Holding Insurance company that many finds an illegal form since it rarely pays anything back to the policyholders that should get the profits back in form of decreased premiums. At least that was the classical reason for the mutual insurance companies. I have problems to get my head around it in the sense of it being dangerous or beneficial to be a shareholder in the long run. Each time they want to expand (organic or take-over) I am sure they will issue new shares to support that which is why they now collect dividends into their HDI V.a.G. Still... the rules says as long as a mutual holding insurance company is traded below P/B of 1 then the shareholder are profiting and when it is traded above 1 then the policyholders are benefitting... That is what the rules says... what is your opinion?

Here you can find the previous analysis of Talanx.

The P/E of Talanx is excellent with 8.9 and the P/B is equally good with 0.6 which gives us a very clear buy from Graham. The earnings to sales are low with 3% and also the ROE is low with only 6.8%. The book to debt ratio for the big insurance companies are looking as bad as for banks and it is down at 0.1.
In the last five years they have had an excellent yearly revenue growth of 5.9% and this then also gives us a motivated P/E of 16 to 20 which means Talanx is highly undervalued on the market today. One would think that at least a P/B of 1 should be reached!
They pay a fully acceptable dividend of 4.5% which represents 40% of their earnings so it is all good!

Conclusion: Graham says yes to Talanx and so do I even though the share price has jumped up since I analysed them the last time. The P/E, P/B and the dividend payments are simply put excellent! There are some clouds as mentioned above in the comment and I would very much appreciate some feedback on that by people with much more knowledge than me!

Talanx jumped up a bit on the live update that you can find by first going to the Stocks of Interest page.
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