![]() ![]() ![]() The second significant error KBW made was one of logic. Correcting for KBW's faulty model but applying the same methodology otherwise would have reduced his price target from $59.71 to approximately $48. Making matters worse, KBW compounds the mistake by applying 1.85x his over-stated book value projection. While the errors in KBW's model are not as large in 4q14 - 4q15 as in 3q14, the cumulative errors continue to add up and result in approximately $6.36 per share of book value in excess of what his own earnings projections imply. One need look no further than his projections for 3q14 (his note was published before 3q14 was reported) to see a mind-numbingly large mistake - somehow KBW expected AFSI's book value per share, excluding AOCI to increase by $4 more than net earnings and ignores dividends on common shares. KBW either struggles with arithmetic or does not seem to understand the concept of double-entry accounting because the amounts he has for earnings and changes in book value are irreconcilable, as demonstrated by the table below. There are at least major flaws with KBW's approach - one simply from bad math/accounting and the other from poor logic. ![]() However, when one's sole job is analyzing insurance companies, it's surprising that basic mathematical and logical errors are made (adamantly no less) on such a significant scale.īelow is a re-creation of KBW's valuation methodology: While the new KBW analyst has put forward several additional faulty arguments, I will focus on these topics in the interest of brevity.ĪFSI is a complicated company, so I understand how an analyst might not understand the Luxembourg accounting or fall for management's "reserves" story related to life settlements. Discrepancies between AFSI & Related Party Maiden Holdings, Ltd.Basic Math & Logic Errors in Price Target Calculation.Perhaps if/when he attempts another rebuttal he will do more than parrot the company line and do some research of his own.Īreas of Flawed Analysis from KBW (pretty much top-to-bottom): What follows is a breakdown of some of the many substantial factual and logical errors of KBW's reports since coverage was transferred. However, in his eagerness, the new KBW analyst revealed a common problem among AFSI bulls - shoddy analysis. Since then, KBW has been an eager and aggressive defender of AFSI. When the analyst covering AFSI left, coverage was transferred to another KBW analyst who made the ratings unanimous (buy). ( AFSI) had one outlier - a neutral rating from KBW. Until mid-October, the sell-side ratings for AmTrust Financial Services, Inc. KBW avoided the main point re: MHLD Discrepancies - instead he argued against points I did not even make!.KBW analyst changed his tune on AFSI's Luxembourg accounting after my initial article.AFSI and/or KBW appear to be twisting words to fit their desired narrative re: unprecedented NYDFS Conditions.Basic errors in KBW's price target calculation reveal a lack of diligence and/or intellectual honesty.Abella holds the Chartered Financial Analyst designation and is a member of the New York Society of Security Analysts and the CFA Institute. Abella spent four years with Merrill Lynch and Paine Webber performing strategic analysis and controller functions, and two years as a Tax Consultant at Arthur Andersen & Co. Abella was a Fundamental Equity Analyst at Rochdale Investment Management, predecessor to City National Rochdale, performing all aspects of in-depth, bottom-up equity analysis. Abella has headed up the research and management of this strategy for client accounts since the spring of 2002, and as Portfolio Manager for City National Rochdale’s Dividend & Income Fund since June of 2003. He is responsible for the development of the highly successful dividend and income equity strategy at City National Rochdale. David Abella, CFA, is a Senior Portfolio Manager for City National Rochdale and has been an integral part of the firm since 1996. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |