Friday I bought Millea Holdings ADRs (MLEAY/OTC) at $35.25 each (they closed the day at $34.78). Millea is Japan’s largest property and casualty insurer. The company was created in 2002 when Tokio Marine & Fire Insurance -- Japan’s oldest property and casualty insurer -- took over Nichido Fire & Marine Insurance.
The net tangible asset value is more than $37 per ADR. The market cap is more than $28 billion, there are over 824 million shares outstanding and the yield is less than 1%.
Japan is a mature, low growth market for Millea. So the company is expanding operations outside its native country. Management wants non-Japanese revenues to reach the 20% to 25% mark by 2010 from the 13% forecasted this year. Management is also buying back shares.
Of the value investors I follow, Millea Holdings is owned by Cundill’s flagship fund in Canada and Longleaf’s International fund. It’s also held by some of the other “usual suspects” among value players, including Marty Whitman.
What are the risks? Primarily natural disasters and other events impacting profits (as with any insurance company), and/or taking bad steps in growing the business outside Japan.
Simply stated, Millea Holdings is an inexpensive stock available at a discount to book value and looks to have very limited downside. But I’ve thought that before and been wrong, so please do your own due diligence before adding this name to your portfolio.
How soft or hard are the markets that Millea is writing in? In the US we have had a softening of standard lines for some time. More recently, specialty lines have been softening and we are now reading that reinsurance rates have declined for the upcoming season.
Where are we in the cycle in the markets in which Millea operates?
thx
Posted by: jr | January 14, 2008 at 11:08 AM
jr: Yeah, we're heading into a less favorable cycle for property & casualty insurers and reinsurers. But Millea is going for less than book because it's doing business in a low growth market. I believe management's move to grow the business (outside Japan) and buy back shares indicates they are committed to growing shareholder value. Yet I may be wrong about that, and wrong in giving that more weight than the insurance cycle.
Posted by: John | January 14, 2008 at 11:59 PM
Only one 2 star plus mutual fund bought MLEAY recently and that was Purisima Total Return fund. The report is at: http://www.thebuylist.com/default.aspx?Stock=mleay
Posted by: TheBuyList.com | January 16, 2008 at 01:21 PM
BuyList: Are you just tracking the ADRs? Or both ADRs in the US and ordinary shares (common shares) trading in Japan? As I've said previously to another commenter, the ADRs are not as liquid as the ordinary shares in Japan.
Posted by: John | January 16, 2008 at 08:52 PM
I like this Millea, but I think that you are overestimating book value. In the Sept report they have 5600 Yen per share in stocks, by my calculation. The Nikkei was around 16,000 at that point which would knock 1000 Yen per share off of book value - almost $10. I think it is slightly above book, which maybe means it is no more expensive than many US companies and a nice play on the Nikkei if that's you're thing.
Posted by: Chris | January 25, 2008 at 12:43 AM
"it is no more expensive than many US companies" should mean many US P&C insurance companies.
Posted by: Chris | January 25, 2008 at 12:45 AM