24 Sep 2015

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Amtrust Financial Services (AFSI)

24 Sep 2015

In this week’s content analysis, we take a look at Amtrust Financial Services (AFSI); a company that has consistently topped our US-Large model portfolio with an SP score of 84%.  Amtrust Financial Services is a multinational property and casualty insurance company headquartered in New York City that operates within three main segments: small commercial business, speciality risk and extended warranty, and specialty program.

The two main indicators that StockPointer uses to calculate the SP Score are SP Performance Score and SP Risk Score. If we take a look at the company’s SP Performance Score, we can see that with a score of 84% it is one of the highest (#6) on StockPointer. The performance spread, derived from return on capital minus cost of capital, is positive and increasing. From a valuation perspective, since September 2010 the company’s intrinsic value has always been above the current market price. However, the gap between the intrinsic value and current market price exponentially increased after September 2013 as the intrinsic value jumped from $45.97 in September 2013 to $121.50 in June 2015, while current market price increased as well but at a slower rate. As of September 21st, the P/IV ratio is at 0.5, reflecting an upside potential of 100%. The current FGV reflects a 23.1% discount relative to current operating value (COV).   Download

Amtrust Financial Services’ economic performance has been growing for the last three years, with the NOPAT (net operating profit after tax) increasing from $229.7M in June 2013 to $532.8M in June 2015 (+59%), and the EVA also consistently increasing and reaching $389.7M in June 2015.

To conclude with the accounting performance, we can see that Amtrust Financial Services has been able to constantly grow its dividends in the past five years, at an average rate of 39% per year. The company has recently announced a quarterly dividend of $0.30, which will be paid on October 15th, 2015. The record date being October 1st, the stock will trade ex-dividend on September 29th. Amtrust Financial Services’ Free Cash Flow decreased from $984.5M in June 2014 to $488.2M in June 2015, but that still represents 3.8% of the total invested capital, which is a satisfying ratio.

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