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Option1307 (29.97)

Buying Markel Seems Like a Good Idea

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January 04, 2013 – Comments (6) | RELATED TICKERS: MKL , ALTE

To be honest I have never paid much attention to the "mini Berkshire" aka Markel (MKL), insurance has never really been my thing.

However I have heard many people rave about MKL over the years. It's one of those companies that seems to always come up when discussing long term buy and hold. The kind you buy and just sort of wait it out, read a 10K here and there but mainly just let it collect dust in the corner of your portfolio. These types of companies can make great investments if bought at the right time, and guess what folks, now may just be the right time for Markel.

As you may or may not know, Markel has recently been hammered after their announcement that they will be buying Alterra (ALTE) in the 1st quarter of 2013. I'll leave out the specifics on the deal, you can read about them yourself if you're interested.

There are a few things you need to know about the deal and its likely outcome, some food for thought before you go blowing your life savings on MKL.

- Markel has been around a long time and is basically a powerhouse when it comes to investing metrics like ROE and growing shareholder value. They have a stellar track record and no signs that this will be letting up anytime soon. Price to book is just over 1.00 which is relatively cheap, even for insurance companies that tend to run lower P/B ratios.

- Down ~10% from recent highs prior to acquisition announcement. This is the type of situation I tend to like where there is a sudden price decline based off of news or some other knee jerk reaction. This can provide a great entry point situation.

- Thomas Gayner is the President and Chief Investment Officer and is, umm, super awesome with his stock picking abilities. He has a solid track record and has been around for a long time.

- It should be noted that historically Markel has NOT been the best at acquisitions to add shareholder value; in the past they have been slow and sluggish to say the least. Slow and steady can win eventually, but may bring about many problems in the near term which can be damaging to shareholder value.

So what you have here is a pretty well run company that hasn’t changed its business fundamentally and now is selling for a ~10% discount from last month. Yes there will be some growing pains and the portfolio of ALTE will need to be tweaked in order to be more in line with MKL standards. However, the key to this whole deal is that Thomas Gayner is hands down the man when it comes to stock picking and creating shareholder value. He has a proven record and Markel has a proven record of delivering killer ROE and increasing shareholder value etc.

I’m still digging but I’m seriously considering picking up a position in MKL in the near future. Anywhere under $450/share and I don’t really see how this won’t be rewarding.

6 Comments – Post Your Own

#1) On January 04, 2013 at 9:15 PM, Option1307 (29.97) wrote:

MKArch linked a good article on the MKL and ALTE merger on a different blog. Figured I would share here.

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#2) On January 06, 2013 at 4:29 PM, Mega (99.95) wrote:

Insurance is kind of my thing, but I had never been interested in Markel until the Alterra merger.  This deal will reduce Markel's P/TB from 1.5x to 1.3x, add good underwriting capability, and give Gayner more float to put to work in equities.

Comparing it to other insurers with equity emphasis, it's still not as cheap as Fairfax, Greenlight, Universal or Allegheny, although like Berkshire Hathaway the insurance operations might be a bit higher quality than those companies.

Between VR buying FSR and MKL buying ALTE, things are heating up in Bermuda. ENH, AHL, AXS, MHLD, AWH, etc. could be targets.

By the way I linked the Brooklyn Investor article, I don't think MKArch did.  

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#3) On January 06, 2013 at 7:47 PM, Option1307 (29.97) wrote:

Wow my bad for not giving you credit for the Brooklyn Investor article, I was flipping between a million posts last night and apparently got confused. Credit goes to MegaShort!

Agree with you about MKL, it just seems like a solid risk/reward at these levels. 

I've always been a big fan of David Einhorn and Greenlight has been something I've been looking into recently as well. More research to do.

 

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#4) On January 07, 2013 at 3:03 PM, Option1307 (29.97) wrote:

Picked up some shres of MKL today, woo wee!

There might be a quick pop after the recent knee jerk reaction but this is mainly a long term buy and hold.

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#5) On January 10, 2013 at 8:46 AM, PrototypeZ (23.45) wrote:

I like it as well, but waiting for it to have a nice correction and bring the price much more in line with next year's earnings.

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#6) On January 11, 2013 at 8:18 PM, Option1307 (29.97) wrote:

I would argue that the recent sell off of 10% was the correction, I'm not sure you will see much more unless the overall market corrects too.

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