In an interview with Insider Monkey earlier yesterday, hedge fund manager David Einhorn said his favorite long pick this year is Dutch insurer Delta Lloyd Group (Euronext: DL). Einhorn says the company is doing very well but is trading at about half of book value and about 6 times earnings. “That’s probably the only stock we have that I think can double and it would still be cheap“, said Einhorn.
Delta Lloyd is a financial services group organized around three activity sectors: insurance – life insurance is about 71.9% of gross premiums issued and general insurance is about 28.1%, fund management, and banking services. The life business is the company’s largest segment and it focuses on pension buyouts from corporations.
At the height of the credit crisis in 2008, a number of businesses in which Delta Lloyd had shares had little or no exposure to any form of risk. Alex Otto, Director of Investments at Delta Lloyd Asset Management, said then that stress tests showed that even if the value of the shares fell by 40%, the company would still have been able to meet their commitments. “Both our capital adequacy – having sufficient capital to be able to meet all our financial obligations,” he said, ” and our cash flow are in excellent shape.”
In one of Greenlight’s investor letters last year, Einhorn explained why they bought Delta Lloyd Group as follows:
Due to a quirk in Dutch law, British insurer Aviva Plc (AV), which had owned 92% of DL in 2009, was limited to two board members. Aviva waged a legal war to gain operating control but lost. It then sold 40% of DL in a November 2009 IPO at €16 per share. DL management got significant stock options and bought shares with their own cash in the IPO. The Partnerships’ position in DL came at an average cost of €15.89 per share, which was 8x concensus estimated earnings and 0.8x book value.
Right now the stock trades below what Einhorn paid for it even though the earnings improved since.